Computers & Industrial Engineering 169 (2022) 108224

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Computers & Industrial Engineering

journal homepage: www.elsevier.com/locate/caie

Hybrid robust and stochastic optimization for a capital-constrained fresh

product supply chain integrating risk-aversion behavior and
financial strategies
Zhimin Guan a, Yuxia Mou a, *, Minghe Sun b
a
School of Business Administration, Northeastern University, Shenyang, China
b
Department of Management Science and Statistics, College of Business, The University of Texas at San Antonio, San Antonio, USA

A R T I C L E I N F O A B S T R A C T

Keywords: A fresh product supply chain is considered in which an omnichannel retailer procures products from multiple
Fresh product supply chain suppliers and distributes them through a distribution center to physical stores to serve both online and offline
Hybrid robust and stochastic optimization customers. A two-stage stochastic optimization model is formulated for the strategic and operational decisions of
Risk aversion
the omnichannel retailer incorporating the decision maker’s risk aversion behavior and financial flow into supply
Trade credit
Bank loans
chain optimization. In the model, the amount of capital possessed by the retailer is treated as a hard constraint,
and trade credit and bank loans are both considered as financial sources. After linearization, the two-stage
stochastic optimization model is transformed into a mixed integer linear programming model. A hybrid robust
and stochastic optimization approach is developed to simultaneously cope with two different types of un­
certainties in the supply chain by including stochastic scenarios for transportation costs and using “interval +
polyhedral” uncertainty sets for demands and deterioration rate. The robust counterpart of the mixed integer
linear programming model is constructed. An improved sample average approximation method using the k-
means clustering technique is adopted to solve the problem. The applicability of the proposed model and the
efficiency of the solution approach are investigated through numerical studies. Some important managerial in­
sights are provided through the model, the solution approach and the numerical studies.

1. Introduction
Facing an increasingly fierce competitive environment, a supply
chain, as a dynamic network structure involving multiple members, may
be disrupted at any point with gradually deepening uncertainties. With
the possibility of risk spreading among supply chain members, an in­
dividual member may put the whole supply chain at risk (Ho, Zheng,
Yildiz, & Talluri, 2015). Therefore, integrated supply chain optimization
under an uncertain environment has become a primary focus for both
scholars and practitioners (Ji, Tang, Sun, & Luo, 2022; Keyvanshokooh,
Ryan, & Kabir, 2016; Yan & Ji, 2020; Yan, Ji, Fang, & Sun, 2021). In
addition, as pointed out by Klibi, Martel, and Guitouni (2010), supply
chain optimization involves not only operational decisions on produc­
tion, distribution and transportation, but also irreversible strategic de­
cisions on facility location and capacity planning with large scale capital
investment and long-term impacts. The effects of strategic decisions may
last for many years while the commercial environment may change.
Therefore, some important parameters, such as demands and costs, may
be necessarily treated as uncertain parameters. Uncertainties are espe­
cially prevalent in the fresh product supply chain where the perishable
characteristics of the products exert tremendous influences. Therefore,
the decisions of a fresh product supply chain should be effective and
robust to hedge against the inherent uncertainties in the competitive
economic environment.
A perishable product is any item that has a limited shelf life after
production or harvest. Fresh products are perishable. Both the quantity
and quality of a perishable product may deteriorate during the process of
transportation and storage. A perishable product loses its value, quality
and quantity gradually with time on the shelf, and is removed and
disposed of after a certain amount of time. Examples of such products
are fruits and vegetables in grocery stores and baked goods in bakeries.
Inventory management of perishable products is different from that of
other products that have relatively long and stable shelf-lives simply
because of additional shrinkage that arise due to spoilage as well as the

* Corresponding author.
E-mail addresses: guanzm168@126.com (Z. Guan), 1223279191@qq.com (Y. Mou), minghe.sun@utsa.edu (M. Sun).

https://doi.org/10.1016/j.cie.2022.108224
Received 3 October 2021; Received in revised form 19 March 2022; Accepted 3 May 2022
Available online 7 May 2022
0360-8352/© 2022 Elsevier Ltd. All rights reserved.
Z. Guan et al.
related dynamics (Piramuthu & Zhou, 2013). Many studies used the
exponential distribution to model the deterioration rates of perishable
products (e.g., Nahmias & Pierskalla, 1973; Theophilus et al., 2021),
while other studies assumed known distributions with deterministic
parameters for the deterioration rates of fresh products (e.g., Gutierrez-
Alcoba, Rossi, Martin-Barragan, & Hendrix, 2017; Qiu, Qiao, & Parda­
los, 2019). However, considering the uncertain environment of the fresh
product supply chain, this work treats the deterioration rate of a fresh
product as an uncertain parameter (Tirkolaee & Aydin, 2022).
Integrated supply chain optimization provides a holistic view of the
entire supply chain including various members, e.g., suppliers, manu­
facturers, distribution centers (DCs), retailers, transportation carriers,
financial intermediaries and consumers, as well as their relationships (Ji
et al. 2022). It is paramountly important for a supply chain to manage
the three major, i.e., material, information and financial, flows effec­
tively and efficiently. Material and information flows have been dis­
cussed extensively, but financial flow has received little attention, in
supply chain optimization. Financing plays an indispensable role in
supply chain optimization, due to the fact that financial operations
supplement the physical flow of products and support the whole supply
chain operations (Polo, Peña, Muñoz, Cañón, & Escobar, 2019). In
practice, the amount of available capital in a supply chain is always
given in advance (Hum, Parlar, & Zhou, 2018). A supply chain with
limited budget is capital constrained, and the capital limitation is a hard
constraint (Wang & Huang, 2019). Financing from financial institutions
such as banks may possibly relax the capital constraint and make the
supply chain more profitable. However, obtaining financing from
financial institutions is difficult for the start-ups and small and medium
sized firms due to their lack of credit history (Wang, Yu, & Jin, 2019).
Supplier financing of retail inventory often referred to as trade credit is
an important source of external financing (Petersen & Rajan, 1997). The
most common forms of trade credit are net terms which are essentially
interest-free loans extended by suppliers to buyers (Yang & Birge, 2018).
With net terms, suppliers allow retailers to delay their payments up to a
pre-specified time period. Cash discount or early payment discount is
another policy that allows retailers to pay off for their products before a
pre-specified time period by awarding them discounts (Lee & Rhee,
2011). Ignoring the availability of funds often results in the interruption
of financial flow in the supply chain, since the actual expenditure may
exceed the actual available funds. Therefore, the efficiency of the whole
supply chain is closely related to financial strategies incorporated into
supply chain optimization (Ramezani, Kimiagari, & Karimi, 2014).
Many fresh product retailers in China, such as Freshhema, Super
Species, and 7Fresh, have adopted the omnichannel mode which is
regarded as one of the most promising businesses in e-commerce and
retail. However, many retailers in practice still suffer huge losses
because of the perishable nature of fresh products. The loss rate of fresh
products may reach 25%–35% (Yang, Tang, & Chen, 2017). According
to Chen, Dong, and Xu (2018), more than 40% of fresh products is dis­
carded as waste every year in the United States. Therefore, a significant
priority for the retailers is to prevent the spoilage in a fresh product
supply chain. Freshness-keeping investment by using more powerful
cooling facilities and/or better packaging can help retailers slow the
deterioration of the products and improve the competitiveness of the
businesses under the omnichannel sales mode. However, the substantial
investment will inevitably take quite an amount of capital and increase
retailer’s financial burden. DaiLuoBo1, as a leading retailer in the field of
fresh product e-commerce in China, entered a bankruptcy reorganiza­
tion process because of its capital chain rupture in 2020. Meanwhile,
Xiao Xiang2 announced the closure of 5 stores in Beijing and Jiangsu due
to the lack of capital. Thereby, it is greatly important to investigate the
financial strategies in fresh product supply chains under the
1
https://www.sohu.com/a/380323933_726993.
2
https://www.sohu.com/a/319727203_120004713.
2
Computers & Industrial Engineering 169 (2022) 108224
omnichannel sales mode.
In this work, an integrated fresh product supply chain optimization
approach is developed under the omnichannel sales mode considering
strategic, including location and allocation, and operational, including
order quantity, inventory level, shipment and financial, decisions for
risk-averse decision makers. Financial decisions include the use of bank
loans and trade credit. Two types of uncertain parameters, one for
transportation cost and the other for demand and deterioration rate, are
considered. Historical data for transportation costs are used to generate
scenarios and, hence, a stochastic programming (SP) approach is used
for this type of uncertainty. Due to the lack of data for demand and
deterioration rate of new products, a robust optimization (RO) approach
is used to address the uncertainties in these parameters. The need to
integrate these two types of uncertainties was justified by Gabrel, Murat,
and Thiele (2014) and Keyvanshokooh et al. (2016). In addition, an
extended conditional value at risk (CVaR) method called the mean-CVaR
is adopted as a coherent risk measure in this work.
The major contributions of this research are summarized as follows:
(1) A two-stage stochastic optimization model is formulated, and
then is transformed into a mixed integer linear programming
(MILP) model by applying some linearization techniques, for the
strategic and operational decisions of the fresh product omni­
channel retailer.
(2) Financial decisions are integrated into a fresh product supply
chain optimization problem under the omnichannel sales mode in
a holistic approach, considering various financial sources
including trade credit and bank loans.
(3) A hybrid robust and stochastic optimization (HRSO) approach is
developed incorporating decision makers’ risk-averse behavior
considering two types of uncertainties, including transportation
costs using SP and demand and deterioration rate using RO, using
“interval + polyhedral” uncertainty sets.
(4) An improved sample average approximation (SAA) method using
k-means clustering is applied to solve the SP problem. This
improved SAA method is proved to be more efficient than the
basic SAA method.
The remainder of this paper is organized as follows. Section 2 briefly
reviews the relevant literature and discusses the significance of this
study. Section 3 introduces the problem and presents the optimization
model incorporating the mean-CVaR. Section 4 presents the HRSO
approach including a RO counterpart formation. An improved SAA
method with k-means clustering is proposed in Section 5. Numerical
studies with sensitivity analyses demonstrating the validity of the model
and the solution method are provided in Section 6. Finally, Section 7
concludes the paper with discussions about future research directions.
Notations used in the optimization model are presented in Appendix A.
The details of the construction of the robust counterpart of the optimi­
zation model are discussed in Appendix B. Some input data for the nu­
merical studies are given in Appendix C.
2. Literature review
This work is closely related to three streams of literature, i.e., un­
certainty considerations in supply chains, supply chain management of
perishable/fresh products and financial flows in supply chains. These
three streams of literature are reviewed separately and research gaps are
identified in this section.
2.1. Uncertainty considerations in supply chains
Several factors in supply chain networks, such as cost, demand and
supply, are inherently uncertain (Ahmadi & Amin, 2019; Rahmati,
Bashiri, Nikzad, & Siadat, 2021). Klibi et al. (2010) investigated
different existing uncertainties in supply chains as well as their sources
Z. Guan et al.
and impacts, and presented a critical review of the optimization models
proposed in the literature. Govindan, Fattahi, and Keyvanshokooh
(2017) gave a detailed review of works in supply chain network design
under uncertainties. This review not only studied various uncertainty
sources and different uncertainty modeling approaches, but also inves­
tigated optimization techniques, including modeling and solution ap­
proaches, to deal with uncertainties. When the stochastic parameters
can be described using known probability distributions, the scenario-
based SP approach is a favored option in supply chain optimization. A
scenario-based SP approach was first used by Sheppard (1974) for a
facility location problem, and then has been gradually exploited for
supply chain network design. Fattahi and Govindan (2017) presented a
stochastic MILP model to address the design and planning of an inte­
grated logistics network with stochastic demand and returns, and
applied a novel simulated annealing method integrated with Latin Hy­
percube Sampling to solve the problem. Li, Yang, and Hu (2018)
developed a stochastic MILP model to deal with the product configu­
ration problem with uncertain supply and demand, used a discrete
scenario-based SP approach to model the uncertainties, and employed
the Benders decomposition algorithm to solve the problem. Nur,
Aboytes-Ojeda, Castillo-Villar, and Marufuzzaman (2020) proposed a
two-stage SP model with uncertain quality in the biofuel industry, and
adopted a hybrid decomposition algorithm combining the SAA method
together with a progressive hedging algorithm to tackle the problem.
Zhang, Guo, Ruan, Wang, and Zhou (2022) developed a novel intelligent
stochastic optimization approach by incorporating a modified adaptive
large neighborhood search algorithm with a scenario generation tech­
nique to handle a high-dimensional stochastic order allocation problem.
When sufficient historical data are not available to estimate accurate
probability distributions for uncertain parameters, RO is a more
appropriate approach to deal with optimization problems with un­
certainties (Tirkolaee, Mandavi, Esfahani, & Weber, 2020; Tirkolaee,
Mandavi, & Esfahani, 2018). Soyster (1973), one of the earliest works on
robust counterpart optimization, pointed out that this approach would
be most conservative since it ensures the feasibility against all potential
realizations of the uncertain parameters. To address the issue of over
conservatism, Bertsimas & Sim (2003, 2004) introduced the budget of
uncertainty into RO. Ben-Tal and Nemirovski (1998) firstly proposed the
ellipsoid uncertainty set in robust counterpart formulation to cope with
parameter uncertainties. Ben-Tal and Nemirovski (1999) illustrated that
when the uncertainty set for a linear constraint is ellipsoid, the robust
formulation turns out to be a conic quadratic problem. More recently,
several stylized, such as combined interval, ellipsoid and polyhedral,
uncertainty sets, which are less conservative than a single set, have been
proposed. Li, Ding, and Floudas (2011) studied different, including in­
terval, combined interval and ellipsoidal, combined interval and poly­
hedral, uncertainty sets, and derived corresponding robust counterpart
formulations for both linear optimization and MILP problems. Almaraj
and Trafalis (2019) developed three robust counterpart models based on
box, polyhedral, and combined interval and polyhedral uncertainty sets
to design a closed loop supply chain, and applied different priori prob­
ability bounds to approximate probabilistic constraints. In real world, it
is necessary to consider both SP and RO approaches to deal with un­
certainties because the uncertain parameters considered in a supply
chain always differ qualitatively. A few works simultaneously consid­
ered SP and RO under combined uncertainty sets. Keyvanshokooh et al.
(2016) proposed a HRSO approach to deal with two types of un­
certainties in a closed-loop supply chain. Li, Zhang, and Yu (2020) used
a HRSO approach in an emergency response network. Both of these two
works used the polyhedral uncertainty set. Ratanakuakangwan and
Morita (2021) adopted a HRSO approach in an energy supply chain
under multiple uncertainties, and used the box uncertainty set for the
uncertain parameters.
Additionally, the risk associated with uncertainties in supply chains
is a critical issue that needs more attention (Qiu, Yu, & Sun, 2021; Yu,
Qiu, & Sun, 2021). Actually, developing an efficient and effective risk-
3
Computers & Industrial Engineering 169 (2022) 108224
averse criterion is a common way to avoid and mitigate risks. CVaR as
a widely used risk measure has gained popularity (Rockafellar & Urya­
sev, 2000). Weskamp, Koberstein, Schwartz, Suhl, and Voß (2019) in­
tegrated CVaR as a risk measure into an optimization model to offer
insight into the impacts of decision maker’s risk aversion on the optimal
production and inventory decisions. Tao, Shao, Guan, Ho, and Talluri
(2020) used CVaR to reflect the decision maker’s risk aversion towards
supply chain cost and service levels in an integrated optimization model.
However, CVaR only focuses on the average value of the cost above a
certain confidence level but ignores the part of cost below this confi­
dence level. To overcome this drawback, some scholars proposed the
combination of cost/profit and CVaR by introducing a parameter,
referred as the mean-CVaR (e.g., Gao, Chen, & Chao, 2011; Ma, Liu, &
Liu, 2019). This current work uses the mean-CVaR, which has been
proven to be an effective method, as a criterion to measure risks.
2.2. Supply chain management of perishable/fresh products
The survival and success of a perishable product supply chain depend
highly on the timely delivery of the fresh products to the customers,
where the optimization of the perishable product supply chain plays a
crucial role. The supply chain optimization of perishable products en­
compasses a wide range of decisions including, but not limited to, fa­
cility location, production, inventory level, transportation and
distribution. Coelho and Laporte (2014) addressed the joint optimiza­
tion of an inventory and routing problem for a perishable product supply
chain with deterministic demand, and formulated a MILP model to
handle the cases where the retailers sell older or fresher items first.
Gutierrez-Alcoba et al. (2017) studied a single-item single-stocking
location production planning problem for a perishable product supply
chain under stochastic demand taking into account a variable disposal
cost due to the limited shelf life of the product, and used an extended
Silver’s heuristic to tackle this problem. Qiu et al. (2019) developed a
model to optimize production, replenishment, delivery, routing and
inventory level for perishable products with age-dependent deteriora­
tion rates and inventory carrying costs, and solved the proposed model
by using a branch-and-cut algorithm. Azadi, Eksioglu, Eksioglu, and
Palak (2018) proposed a two-stage stochastic optimization model to
determine the supplier selection, replenishment schedule and the timing
and size of price markdown for an inventory system to simulate the
demand for a fresh product approaching the end of its shelf life, and
developed an extended Benders decomposition algorithm via a piece­
wise linear approximation method to solve the problem. Liu, Zhu, Xu,
Lu, and Fan (2021) developed an integrated location inventory routing
model to investigate the optimal scheme in a perishable product supply
chain, where the freshness of the products changes with time. Jouzdani
and Govindan (2021) developed a multi-objective mathematical pro­
gramming model to optimize a perishable product supply chain and
modeled the product lifetime uncertainty as a Weibull random variable.
Tirkolaee and Aydin (2022) proposed multi-objective MILP models to
optimize a perishable product supply chain taking the deterioration rate
of the in-stock products into account, and developed a hybrid solution
method based on possibilistic linear programming and fuzzy weighted
goal programming approaches to address uncertainty and perishability.
2.3. Financial flows in supply chains
According to the comprehensive review conducted by Melo, Nickel,
and Gama (2009), the literature has been inclined to focus on financial
aspects in supply chain management by accounting for budget con­
straints and incentives. Many researchers have conducted in-depth
studies on the impact of financial constraints on supply chain manage­
ment. Polo et al. (2019) formulated a mixed integer nonlinear pro­
gramming model that incorporates financial risk measures in the robust
design of a closed-loop supply chain. Wang and Huang (2019) proposed
a scenario-based approach in designing a flexible capital-constrained
Z. Guan et al. Computers & Industrial Engineering 169 (2022) 108224

Table 1
A summary of relevant works.
Relevant work Material Trade Bank Optimization Supply chain Uncertain parameters Risk Solution method
flow credit loans Method type measure

SP RO

Keyvanshokooh et al. √ √ √ Closed-loop Transportation cost, demand None Latin Hypercube Sampling
(2016) and return method, Benders
Decomposition
Fattahi and Govindan √ √ Forward/ Demand and return None Latin Hypercube Sampling
(2017) reverse method, Simulated Annealing
Gutierrez-Alcoba √ √ Perishable Demand None Monte Carlo method, Silver’s
et al. (2017) product heuristic
Alavi and √ √ √ √ Chemical Demand None Lagrangian Relaxation
Jabbarzadeh product
(2018)
Wang et al. (2019) √ √ √ Global Demand and exchange rate None CPLEX solver
Weskamp et al. √ √ Apparel Demand CVaR SAA, Nested Benders approach
(2019)
Ma et al. (2019) √ √ Closed-loop Transportation cost, demand CVaR CPLEX solver
and return
Azadi et al. (2019) √ √ Perishable Demand None McCormick relaxations
product
Nur et al. (2020) √ √ Biofuel Quality None SAA, Progressive Hedging
algorithm
Li et al. (2020) √ √ √ Emergency Evacuee scales, None Augmented Lagrangian
transportation time Relaxation
Tao et al. (2020) √ √ Industrial Demand and supply CVaR Normalised Normal Constraint
algorithm
Jouzdani and √ √ Perishable Product lifetime None Goal Programming
Govindan (2021) product
Razavian et al. (2021) √ √ √ √ Chemical Demand CVaR CPLEX solver
product
Zhang et al. (2022) √ √ Apparel Order None Large Neighborhood Search
algorithm
This work √ √ √ √ √ Fresh product Transportation cost, demand Mean- SAA with k-means clustering
and deterioration rate CVaR

global supply chain in which the capital constraint can be relaxed
through loans from financial institutions. Emtehani, Nahavandi, and
Rafiei (2021) proposed an efficient operations-finance integrated deci­
sion framework, and developed two heuristic solution methods to
handle the financing constraints.
Trade credit and bank loans, as crucial financing tools, have been
extensively studied in supply chain management. Zhong, Shu, Xie, and
Zhou (2018) developed an integrated supply chain network design and
inventory control model incorporating trade credit. Tsao (2018) studied
the optimal credit period and replenishment decision considering the
effects of credit period on demand rate and default risk, treating the
default risk as an uncertain parameter. Alavi and Jabbarzadeh (2018)
presented a stochastic RO model for supply chain network design
problems, while accounting trade credit and bank loans as financial
sources. Razavian, Tabriz, Zandieh, and Hamidizadeh (2021) consid­
ered financing strategies, including trade credit and bank loans, in
supply chain optimization under uncertain demand, and found that the
incorporation of different financing sources plays an important role in
the resilient supply chain design. Considering bank loans and trade
credit, Zou, Zou, and Hu (2021) investigated the financing and ordering
decisions for a manufacturer and the pricing decision for a supplier, and
compared the results of different financing modes with or without car­
bon emission reductions. Zheng, Zhao, Wang, Meng, and Yang (2022)
explored the use of trade credit and bank loans in the financial decisions
of a financial constrained retailer in a remanufacturing supply chain
with market uncertainty, and found that the coordinated contract has a
more efficient improvement effect with trade credit than with bank
loans. For general supply chain financing, this current work develops a
stylized approach to integrate both bank loans and trade credit simul­
taneously in supply chain optimization.
2.4. Research gaps and contributions
Table 1 presents an overview of the most relevant literature. Through
literature review, research gaps are identified and the contributions of
this work are revealed. The literature review indicates that modeling
financial flows in supply chain optimization considering various un­
certainties has not been examined. As far as known, the existing works
have not thoroughly explored the impacts of trade credit and bank loans
on supply chain decisions. Additionally, a HRSO approach incorporating
the mean-CVaR has not been adopted to supply chain optimization
problems. Only a few works considered the operational and financial
decisions simultaneously in dealing with perishable products. However,
due to the perishable nature of fresh products, supply chain members
need to explore the optimal operational and financial decisions while
preventing deterioration of the products. This study makes contributions
by filling these research gaps.
3. Problem description and model formulation
Due to the overwhelming development of omnichannel retailing,
many online retailers have gradually opened brick-and-mortar stores,
which is a new retailing mode that completely reconstructs the offline
and online channels. A consumer can go to a physical store to purchase
the products or can place an online order using a specific APP or on a
website. Fast delivery becomes an important feature for omnichannel
retailers. The evident difference between omnichannel retail and tradi­
tional retail is that omnichannel retailers use big data, Internet of
Things, and automation for their business operations. Therefore, a huge
investment is required to construct a robust supply chain system
compared with the traditional retailing mode. In addition, the invest­
ment in a brick-and-mortar store may be as high as several million Yuan.
An omnichannel retailer also needs to determine the optimal portfolio of
financial sources as the capital is always insufficient. Additionally, an

4
Z. Guan et al.
Supplier
DC
Store
Customer
Bank
Material flow
Pick up in store
Transshipment
Trade credit
Bank loans
Fig. 1. The structure of the fresh product supply chain.
omnichannel retailer mainly purchases directly from suppliers with no
intermediaries so that it has a great price advantage.
The problem studied in this work is described first. The two-stage
stochastic optimization model is then formulated and further trans­
formed into a MILP model through linearization.
3.1. Problem description
The multi-product, multi-period and capital-constrained supply
chain considered in this work consists of suppliers, an omnichannel
retailer with a DC and physical stores, customers, and a bank. Un­
certainties exist in demands, deterioration rates and transportation costs
of the products. The supply chain, with a schematic structure shown in
Fig. 1, is for fresh products operating in a regional market. Suppliers may
include farms, pastures, fishing grounds, etc. The suppliers, providing
trade credit as a persuasive technique to increase their sales, sell prod­
ucts to the omnichannel retailer through the DC. The DC, owned by the
omnichannel retailer, serves the physical stores, and the physical stores
serve customers in different regions. As the last layer of the supply chain,
the customers have uncertain demands that can be satisfied by inte­
grating the different sales channels under the context of omnichannel
retail. Online orders generated from any region is fulfilled by the specific
store serving that region. Offline customers who choose to visit the
stores in person will buy and pick up the products in the stores. A pe­
riodic review inventory policy is assumed for the physical stores to
control inventory levels.
Following the policy of net terms or open account financing, the
5
Computers & Industrial Engineering 169 (2022) 108224
omnichannel retailer is assumed to postpone the payment for a certain
amount of time as specified in the net term without any interest charge.
However, a penalty will be imposed if the omnichannel retailer delays
any repayment after the net term. Bank loans are another financial
source for the omnichannel retailer, which can be used for establishing
stores, and can also be used as short-term working capitals for pur­
chasing products. The bank loans require repayment with a specified
interest rate. Due to the capital constraints, both the amounts of trade
credit and bank loans in each period are limited.
The strategic and operational decisions include (1) the locations of
the physical stores, (2) the order quantities of the DC from the suppliers,
(3) the inventory levels of the physical stores, and (4) the quantities of
products shipped from the DC to the physical stores, among the physical
stores, and from the physical stores to the consumers. The financial
decisions include (1) the amount of trade credit to receive from each
supplier in each period, (2) the amount of bank loans for each period, (3)
the time and amount of repayment to each supplier for the received
trade credit, and (4) the time and amount of repayment for the received
bank loans.
The purpose of this study is to design a supply chain network under
uncertainties in transportation costs, demands and deterioration rates.
On the one hand, during the last decade, fluctuations in fuel prices and
changes in traffic regulations have significant impacts on, and cause
uncertainty in, transportation costs, and this uncertainty continues to
affect business decisions (Pishvaee, Jolai, & Razmi, 2009). Therefore,
the available historical data of the retailer on transportation costs are
used to describe this uncertainty and to generate scenarios for
Z. Guan et al. Computers & Industrial Engineering 169 (2022) 108224

transportation costs, and hence a SP approach is adopted for this type of ⎧

hdjp1 , 0⩽EXtpj ⩽e1
uncertainty. On the other hand, it is extremely difficult to predict the ⎪
⎪
⎨
hdjp2 , e1 < EXtpj ⩽e2
distributions of future demands and deterioration rates of the products. hdjp = with (hdjp1 ⩽hdjp2 ⩽hdjp3 ⩽...⩽hdjpl ). (1)
⎪ ...
Unexpected events such as the appearance of new competitors and ⎪
⎩
hdjpl , el− 1 < EXtpj ⩽el
weather changes can exert impacts on demands, and various external
factors such as the weather and loading conditions affect deterioration
rates. Therefore, this work adopts a RO approach by formulating un­ 3.2. Model formulation
certainty sets, instead of assuming known probability distributions, to
describe uncertainties in demands and deterioration rates. The deteri­ The strategic decisions such as the locations of the physical stores
oration of the products is assumed to occur during transportation to and the financial needs are made before the realizations of any uncertain
physical stores, and the freshness of the products is assumed to be parameters. Some of the operational decisions are made after the re­
guaranteed from the suppliers since the retailer directly procures the alizations of the uncertain parameters. Therefore, the supply chain
products from the suppliers. Additionally, because of the short distances optimization model is a two-stage stochastic optimization model. All
between the physical stores and the customers, the deterioration can be notations used in the mathematical programming model are listed in
ignored during distribution to customers. With uncertainties, the supply Appendix A.
chain is exposed to risks. Because the retailer is assumed to be risk
averse, one goal of the retailer is to reduce the risk of the supply chain 3.2.1. The objective function
profit fluctuations. Therefore, based on the mean-CVaR criterion, a two- The profit of the supply chain under a scenarios, represented by
stage stochastic optimization model is formulated and a HRSO approach profits , is given as follows:
is developed to cope with the two types of uncertainties. The assump­

{ }
∑∑∑∑ ∑ ∑[ ] ∑∑∑
profits = s
WCtpjk vp − fj Yj + CEj (1 + r)n − CEj − s
prpi WItpi
t∈T p∈P j∈J k∈K j∈J j∈J t∈T p∈P i∈I
∑∑∑ ∑∑∑∑ ∑∑∑( )
− Pap WQstpj − μ s
Injp WCtpjk − s
hdjp EXtpj s
+ stjp CLtpj
t∈T p∈P j∈J t∈T p∈P j∈J k∈K t∈T p∈P j∈J
[ ( )]
∑∑ ∑
s s
∑
s s
∑∑
s s
∑ ∑
s s
(2)
− WItpi tr1ti + WQtpj tr2tj + μ tr3tjk WCtpjk + trtjj′ QTtpjj′
t∈T p∈P i∈I j∈J j∈J k∈K j∈J j′ ∈J:j′ ∕
=j
[ ( ) ( )]
∑∑∑ ∑∑ ∑ ∑∑∑ ∑
− f rjp WQstpj − RPstt′ τ − BCtsτ − PTtts ′ pi − TCtpi
s
, ∀s ∈ S
t∈T p∈P j∈J t∈T τ∈Θ ′ ′ t∈T p∈P i∈I ′ ′
t ∈T:t+1⩽t ⩽t+τ t ∈T:t ⩾t+1

tions in the proposed optimization model are given as follows.
(1) The locations of the suppliers, the DC and the customers are
known and fixed.
(2) Each supplier can only provide one type of product.
(3) The customers are divided into different regions based on their
geographic locations, such as office buildings, residential areas,
schools and other demand points.
(4) Each customer can only be served by one physical store, but one
physical store can serve multiple customers within its coverage
area.
(5) The DC only plays a role in logistics transit, but does not have
storage capacity.
(6) Before distributed to physical stores, products have been pro­
cessed, e.g., packed, labelled, etc., at the DC. The freshness of the
products gradually declines, directly aggravating the deteriora­
tion process during transportation from the DC to the physical
stores.
(7) The unit disposal cost of the remaining inventory hdjp of each
product p at a physical store j is assumed to be a nonlinear
stepwise function depending on the quantity of the remaining
The different terms in (2) are explained in the following. The first
term is the total revenue obtained from selling products to customers
under scenario s. The second term represents the cost and the bank loan
interests of establishing physical stores. The third term is the procure­
ment cost of the products under scenario s. The fourth term is the pro­
cessing cost of the products at the DC under scenario s. The fifth term is
the information processing cost of online orders under scenario s. The
sixth term is the inventory cost, including the disposal cost of the
remaining inventory and the shortage cost in the physical stores under
scenario s. The seventh term represents the transportation costs,
including transporting products from the suppliers to the DC, from the
DC to the physical stores and from the physical stores to the online
customers, and the transshipment among physical stores under scenario
s. The next term is the freshness-keeping cost in the physical stores under
scenario s. The last term is the payment of the interests of bank loans and
trade credit under scenario s.
The expected value of the profit of the supply chain is then given in
(3) as follows:
∑
E(profit) = Prs profits , (3)
s∈S

stock EXtpj at the end of each periodt. The higher the ending where Prs ∈ [0, 1] is the probability of occurrence of scenario s with Prs ⩾
∑
remaining inventory is, the higher the unit disposal cost is. 0 and Prs = 1.
Therefore, hdjp is modeled as a stepwise function of the remaining s∈S

stock as shown in (1) below, where e1 , …, el denote the interval
endpoints of the different remaining stock levels forl ∈ L:
Value-at-risk (VaR) is an efficient method for measuring downside
risks, which shows the possibility of future losses with a specified con­
fidence level (Rockafellar & Uryasev, 2002). Let y ∈ Y be a stochastic
parameter with a probability density function p(y). Let f(x, y) be a loss
function of y, where x ∈ X is a decision variable. Then, the probability of

6
Z. Guan et al. Computers & Industrial Engineering 169 (2022) 108224

∫
f(x, y) not exceeding a threshold θ is given byζ(x, θ) = f(x,y)⩽θ p(y)dy, s ∑ ∑ s
s
EXtpj s
− CLtpj = WQstpj (1 − ̃
δ tp ) − s
QTtpjj ′ −
̃ Zjk ,
D ∀t ∈ T, ∀p
where ζ(x, θ) is the distribution function for the loss associated with x. ′ ′ k∈K
Then VaRβ represents the threshold value θ at which the probability of
j ∈J:j ∕
=j tpk

the loss is smaller than the given confidence level β ∈ (0, 1), which can ∈ P, ∀j ∈ J, ∀s ∈ S
be denoted as VaRβ = min{ θ ∈ R|ζ(x, θ)⩾β}. (9)
However, VaR has the limitation of not focusing on the effect of the s ∑ ∑
upward profit. CVaR can quantify the average profit in the tail of the WQstpj (1 − ̃
δtp ) = EX stpj + WCstpjk + QT stpjj’ , ∀t ∈ T, ∀p ∈ P, ∀j
probability distribution, and has become a common tool in decision- k∈K j’ ∈J:j’ ∕
=j

making problems with risk due to the fact that it can overcome the ∈ J, ∀s ∈ S
limitation of VaR (Rockafellar & Uryasev, 2002). Hence, this work (10)
adopts the CVaR measure in (4) in the following to formulate the
objective function of the mathematical programming model. s
EXtpj CLstpj = 0, ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀s ∈ S (11)
{ }
1 ∑ s ∑
CVaRβ (profit) = max θ − E[max(θ − profits , 0)] , (4) ̃ Zjk −
CLstpj = Max{( D s
WCtpjk ), 0}, ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀s ∈ S
θ∈R 1− β tpk
k∈K k∈K

(12)
where β ∈ (0, 1) represents the confidence level. As shown in (4), CVaR
is difficult to calculate directly and, thus, a Monte Carlo simulation ∑
Zjk ⩽1, ∀k ∈ K (13)
method is adopted, which usually finds an approximation through sce­ j∈J
narios randomly generated according to the distributions of the sto­
chastic parameters. Zjk djk ⩽Rmax Yj , ∀j ∈ J, ∀k ∈ K (14)
The auxiliary variable tns is introduced to represent max{ θ − profits ,
0}, called the tail of the profit distribution. Therefore, an approximation s
WCtpjk ⩽G⋅Zjk , ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀k ∈ K, ∀s ∈ S (15)
of (4) can be written as (5) below:
∑∑
1 ∑ μ s
WCtpjk ⩽IPj Yj , ∀t ∈ T, ∀j ∈ J, ∀s ∈ S (16)
CVaRβ = VaRβ − Prs tns . (5) p∈P k∈K
1 − β s∈S
∑
(17)
s
CVaR mainly focuses on the average value of the profits below the WQstpj (1 − ̃
δtp )⩽ICj Yj , ∀t ∈ T, ∀j ∈ J, ∀s ∈ S
confidence level, and ignores the profits above the confidence level. In p∈P

this sense, the decision using CVaR is too conservative. Thus, it is more ∑ ∑ ∑
reasonable to set up the objective function as a convex combination of
s
prpi WItpi ⩽ PCtps τ + s
TCtpi + PBstp , ∀t ∈ T, ∀p ∈ P, ∀s ∈ S (18)
the expected value and the CVaR of the total profit, called the mean-
i∈I τ∈Θ i∈I

CVaR. The objective function, to be maximized, can then be formu­ s

TCtpi ⩽otpi , ∀t ∈ T, ∀p ∈ P, ∀i ∈ I, ∀s ∈ S (19)
lated in (6) as follows:
∑
λE(profit) + (1 − λ)CVaRβ (profit), (6) CEj Yj ⩽bd1 (20)
j∈J

where λ ∈ [0, 1] is a risk aversion parameter which weighs the impor­

tance between profit and risk. The decision maker is risk neutral and BCtsτ ⩽bd2τ , ∀t ∈ T, ∀τ ∈ Θ, ∀s ∈ S (21)
only focuses on the expected profit when λ = 1, and is risk averse and ∑ ∑∑
only focuses on risks when λ = 0. The objective function is concave and CBj + PBstp ⩽B, ∀s ∈ S (22)
the decision maker’s risk aversion attitude gradually weakens as λ in­
j∈J t∈T p∈P

creases within[0, 1]. ∑ ’

TCstpi ⩽ PT stt’ pi (1 + rti )max{0,t − t− φi }
, ∀t ∈ T, ∀p ∈ P, ∀i ∈ I, ∀s ∈ S
3.2.2. The two-stage stochastic optimization model
t’ ∈T:t’ ⩾t+1

(23)
A two-stage stochastic optimization model is formulated as a base­
line model assuming full knowledge of probability distributions for the ∑ ′

uncertain transportation costs. The strategic decisions such as store lo­ BCtsτ ⩽ RPstt′ τ /(1 + rτ /12)t − t , ∀t ∈ T, ∀τ ∈ Θ, ∀s ∈ S (24)
cations are the here-and-now decisions that should be made before the
′ ′
t ∈T:t+1⩽t ⩽t+τ

realization of the uncertain parameters in the first stage, and the oper­
BCtsτ ⩽G⋅Vtsτ , ∀t ∈ T, ∀τ ∈ Θ, ∀s ∈ S (25)
ational decisions such as network flows regarding the transportation of
the products are the wait-and-see decisions that should be made after the
fj ⋅Yj ⩽CEj + CBj , ∀j ∈ J (26)
realization of the uncertain parameters in the second state. The two-
stage stochastic optimization model can be formulated as follows: ∑
BCtsτ − PCtps τ = 0, ∀t ∈ T, ∀τ ∈ Θ, ∀s ∈ S (27)
max λE(profit) + (1 − λ)CVaRβ (profit) (7) p∈P

s.t. CEj ⩽G⋅Yj , ∀j ∈ J (28)

∑ ∑
WQstpj = s
WItpi , ∀t ∈ T, ∀p ∈ P, ∀s ∈ S (8) CBj ⩽G⋅Yj , ∀j ∈ J (29)
j∈J i∈I

tns = Max{VaR − profits , 0}, ∀s ∈ S (30)

7
Z. Guan et al. Computers & Industrial Engineering 169 (2022) 108224

Fig. 2. The “interval + polyhedral” uncertainty set.

Yj , Zjk , Vtsτ ∈ {0, 1}, ∀t ∈ T, ∀τ ∈ Θ, ∀j ∈ J, ∀k ∈ K, ∀s ∈ S (31) e-hashem, Baboli, and Akbari Jokar (2014), dummy binary variables
s s
Xtpjl and dummy continuous variables EXtpjl are introduced, and con­
straints (33)–(37) can be added to the model for the remaining inventory

s s s s s s s s s s s s
EXtpj , QTtpjj ′ , WItpi , WQtpj , WCtpjk , CLtpj , TCtpi , PT ′ , CEj , BCtτ , RP ′ , PCtpτ , PBtp , CBj ⩾0,
(32)
tt pi tt τ
′ ′
∀t, t ∈ T, ∀τ ∈ Θ, ∀p ∈ P, ∀i ∈ I, ∀j, j ∈ J, ∀k ∈ K, ∀s ∈ S

s
∑ s
hdjp in (1),EXtpj = l∈L EXtpjl , ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀s ∈ S (33)
The objective function (7) is to maximize a convex combination of
the expected value and the CVaR of the total supply chain profit. Con­
s
el - 1 Xtpjl s
⩽EXtpjl s
⩽el Xtpjl , ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀l ∈ L, ∀s ∈ S (34)
straints (8)–(10) are the conservation of flow constraints. Constraints (8) ∑
ensure the purchased products from the suppliers are completely
s
Xtpjl = 1, ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀s ∈ S (35)
transported to the physical stores. Constraints (9) balance the inventory l∈L

level of each physical store in each period. Constraints (10) balance the
X stpjl ∈ { 0, 1} , ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀l ∈ L, ∀s ∈ S (36)
inflow and the outflow for each product in each period in each physical
store. Constraints (11) state that the remaining stock and the back­ s
EXtpjl ⩾0, ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀l ∈ L, ∀s ∈ S. (37)
ordered quantity cannot be simultaneously positive for each product in
each period at each physical store. Constraints (12) compute the back­ The cross product of the two continuous variables EXtpj
s
and CLstpj in a
ordered quantity for each period. Constraints (13)–(15) assign cus­ constraint in (11) is a nonlinear term. Thus, the linearization technique
tomers to physical stores. Constraints (13) guarantee that a customer proposed by Rahimi, Baboli, and Rekik (2017) can be applied. A new
region can only be served by one physical store. Constraints (14) indi­ binary variable Ftpj
s
as defined in (38) is introduced and three new con­
cate that the served customers must be in the coverage area of each straints (39)–(41) are used to replace the constraint in (11) as follows,
physical store. Constraints (15) guarantee that the products are not {
shipped from any physical store to any customer if the physical store s
1, if EXtpj =0
does not serve the customer. Constraints (16) and (17) model the ca­
s
Ftpj = s , ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀s ∈ S (38)
0, if CLtpj = 0
pacities. Constraints (16) set the information processing capacity for
each physical store. Constraints (17) set the inventory capacity for the CLstpj ⩽G⋅Ftpj
s
, ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀s ∈ S (39)
physical stores. Constraints (18)–(29) are the financial constraints.
Constraints (18) determine the amounts of finance from different sour­ s
EXtpj s
⩽G⋅(1 − Ftpj ), ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀s ∈ S (40)
ces, including the trade credit, bank loans and available capital budget,
used to purchase product p from the suppliers. Constraints (19)–(22) s
Ftpj ∈ {0, 1}, ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀s ∈ S. (41)
reflect limitations in different financial sources. Constraints (23) and
(24) ensure repayment of trade credit and bank loans to suppliers and Finally, constraints (12) can be converted into constraints (42) and
banks, respectively, used for purchasing products. Constraints (25) (43), and constraints (30) can be replaced by constraints (44) and (45),
indicate that the amount of bank loans released with specific length of ∑ s ∑
maturity should be considered only if the bank loans are approved. CLstpj ⩾ D̃ tpk − s
WCtpjk , ∀p ∈ P, ∀j ∈ J, ∀t ∈ T, ∀s ∈ S (42)
k∈K k∈K
Constraints (26) ensure the feasibility of bank loans and capital budget
for constructing physical stores. Constraints (27) indicate that the bank CLstpj ⩾0, ∀j ∈ J, ∀p ∈ P, ∀t ∈ T, ∀s ∈ S (43)
loans will be fully used for purchasing products. Constraints (28) and
(29) ensure that the bank loans and capital budget can be used for the tns ⩾VaR − profits , ∀s ∈ S (44)
construction of a physical store if and only if the retailer has decided to
construct a physical store at a specific location. Constraints (30) specify tns ⩾0, ∀s ∈ S. (45)
the tail of the profit distribution. Constraints (31) and (32) specify the
After linearization, the proposed two-stage stochastic optimization
domains of the decision variables.
model in (7)–(32) above can be written as the following equivalent
MILP.
3.2.3. Linearization
Linearization techniques are adopted to transform nonlinear terms in max λE(profit) + (1 − λ)CVaRβ (profit) (46)
the two-stage stochastic optimization model into their equivalent linear
terms. First, as mentioned above, the disposal cost of the remaining s.t. (8) − (10), (13) − (29), (31) − (45). (47)
inventory hdjp is a nonlinear stepwise function (1). Following Sazvar, Al-

8
Z. Guan et al. Computers & Industrial Engineering 169 (2022) 108224

4. The hybrid robust and stochastic optimization approach 4.2. The robust counterpart

The HRSO approach is proposed to transform the MILP model in (46) According to Bertsimas and Sim (2004), the corresponding robust
and (47) into a robust counterpart formulation. First, a RO approach is counterpart based on the “interval + polyhedral” uncertainty set derived
presented as a prelude to describe the HRSO approach. In RO, an un­ from (48) is given as follows:
certain parameter is assumed to change in a given uncertainty set, so as
max cj xj
to select the best solution among those “immunized” solutions against
parameter uncertainty. Following Bertsimas and Sim (2003, 2004), RO s.t.
is briefly introduced in the following. Consider the following linear [ ]
∑ ∑
programming problem aij xj + wij + wi0 + Γi ui ⩽bi ,
∑ j∈Ji j∈J
i
max cj xj ⃒ ⃒
ui + wij ⩾̂a ij ⃒xj ⃒, ∀j ∈ Ji , (54)
(48)
j
∑ xj ⩽̃ bi , ∀i, xj ⩾0, ∀j,
s.t. aij
̃ ui + wi0 ⩾̂ bi ,
j ui ⩾0, wij ⩾0, wi0 ⩾0, ∀j ∈ Ji ,

where cj ,̃
aij and ̃
bi represent the true values of the parameters, and ̃
aij and where ui and wij are the corresponding dual variables. Appendix B
bi are subject to uncertainty.
̃ provides a detailed derivation of this robust counterpart. In the proposed
The influences of the uncertain parameters in each constraint are HRSO approach, within each scenario of the transportation cost, the
assumed to be independent of each other. The following uncertainty set “interval + polyhedral” uncertainty sets are defined for the demand and
is defined for the coefficients on the left-hand side and the constant on the deterioration rate, respectively.
the right-hand side of constraint i of the above linear programming Constraints (9), (10), (17) and (42) contain uncertain parameters.
problem. The corresponding counterpart formulations based on the “interval +
polyhedral” uncertain sets for these constraints are presented separately.
aij = aij + ξij ̂
̃ a ij , ∀j ∈ Ji , (49) Appendix B provides more details. The robust counterpart of a constraint
in (9) is shown in (55) as follows:
bi = bi + ξi0 ̂
̃ bi, (50) ⎧ ∑ ∑
⎪
⎪
s
EXtpj − CLstpj = WQstpj (1− δstp )− Γ1sδ+D u1sδ+D − w1stp − w1stpk − Dstpk Zjk ,
⎪
⎪
⎪
where aij and bi denote the nominal values, ̂ a ij and ̂
b i represent the ⎪ k∈K k∈K
⎪
⎪
⎪
⎪ ∀t ∈ T,∀p ∈ P,∀j ∈ J,∀s ∈ S
⎨
constant deviations with ̂ a ij > 0 and b i > 0, ξij and ξi0 are random vari­
̂
s
u1δ+D +w1tp ⩾̂
s s
δ tp WQstpj , ∀t ∈ T,∀p ∈ P,∀j ∈ J,∀s ∈ S .
ables with ξij , ξi0 ∈ [− 1, 1], and Ji is the set of uncertain parameters in ⎪
⎪
⎪
⎪
constraint i. Constraint i can be rewritten as: ⎪ s
⎪
⎪ u1sδ+D +w1stpk ⩾ D ̂ tpk Zjk , ∀t ∈ T,∀p ∈ P,∀j ∈ J,∀k ∈ K,∀s ∈ S
⎪
⎪
∑ ∑ ⎪
⎩
aij xj + [− ξi0 ̂
bi + a ij xj ]⩽bi .
ξij ̂ (51) u1δ+D ⩾0,w1tp ⩾0,w1stpk ⩾0, ∀t ∈ T,∀p ∈ P,∀k ∈ K,∀s ∈ S
s s

j∈Ji j∈Ji (55)

The purpose of RO is to choose solutions that remain feasible for any The robust counterpart of a constraint in (10) is given by (56) in the
ξ = { ξij , ξi0 } in a given uncertainty set U in order to immunize against following:
uncertainty. Thus, (51) can be written as follows: ⎧ ∑ ∑
{ } ⎪
⎪ WQstpj (1 − δstp ) − Γ2sδ u2sδ − w2stp = EXtpjs
+ s
WCtpjk + s
QTtpjj′,
∑ ∑ ⎪
⎪
⎪
⎪ k∈K ′ ′
(52)
j ∈J,j ∕=j
aij xj + max − ξi0 ̂ bi + a ij xj − bi ⩽0.
ξij ̂ ⎪
⎨
j∈Ji j∈Ji ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀s ∈ S .
⎪
⎪ s
⎪
⎪ s s ̂
u2δ + w2tp ⩾ δ tp WQstpj , ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀s ∈ S
⎪
4.1. The “interval + polyhedral” uncertainty set ⎪
⎪
⎩ u2s ⩾0, w2s ⩾0, ∀t ∈ T, ∀p ∈ P, ∀s ∈ S
δ tp

The HRSO approach adopts the “interval + polyhedral” uncertainty (56)

set. The “box + polyhedral” uncertainty set is defined in the following The robust counterpart for a constraint in (17) is shown in (57) as
and the “interval + polyhedral” uncertainty set is special case of the follows:
“box + polyhedral” uncertainty set. ⎧∑ ∑
Definition. The “box + polyhedral” uncertainty set (Li et al., 2011) ⎪
⎪
⎪
WQstpj (1 − δstp ) − Γ3sδ u3sδ − w3stp ⩽ICj Yj , ∀t ∈ T, ∀j ∈ J, ∀s ∈ S
⎪
is the intersection of the box uncertainty set defined with the L∞ -norm ⎨ p∈P p∈P

and the polyhedral uncertainty set defined with the L1 -norm as follows: .
s
⎪
⎪ u3sδ + w3stp ⩾̂ δ tp WQstpj , ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀s ∈ S
∑ ⎪
⎪
⃒ ⃒ ⎩
U1∩∞ = {ξ| |ξj |⩽Γi , ⃒ξj ⃒⩽Ψ, ∀j ∈ Ji }, (53) u3sδ ⩾0, w3stp ⩾0, ∀t ∈ T, ∀p ∈ P, ∀s ∈ S
j∈Ji
(57)

where Γi , with Γi ∈ [0, |Ji |], and Ψ are the budgets of uncertainty. The robust counterpart of a constraint in (42) is expressed in (58) as
When Ψ = 1, this uncertainty set is the intersection of the interval follows:
and the polyhedral uncertainty sets, which is referred as the “interval + ⎧ ∑ ∑ ∑
⎪ CLstpj ⩾ Dstpk Zjk − WCstpjk + Γ4sD u4sD + w4stpk ,
polyhedral” uncertainty set. When Γi = 1, the polyhedron is exactly ⎪
⎪
⎪
⎪ k∈K k∈K k∈K
inscribed by the box and the intersection between the polyhedron and ⎪
⎨
∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀s ∈ S (58)
the box is exactly the polyhedron, and when Γi = |Ji |, the intersection ⎪ s
.
⎪ s s ̂
between the polyhedron and the box is exactly the box. The “interval + ⎪
⎪
⎪
⎪
u4D + w4 tpk ⩾ D Z
tpk jk , ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀k ∈ K, ∀s ∈ S
⎩
polyhedral” uncertainty set for different values of Γi and Ψ = 1 with 2 u4sD ⩾0, w4stpk ⩾0, ∀t ∈ T, ∀p ∈ P, ∀k ∈ K, ∀s ∈ S
uncertain parameters is illustrated in Fig. 2.
Thus, the robust counterpart of the MILP model in (46)–(47) is given
as follow:

9
Z. Guan et al.
(a) The sample (b) Clusters of similar
scenarios
Fig. 3. Graphic representation of scenario aggregation performed in the improved SAA.
max λE(profit) + (1 − λ)CVaRβ (profit) (59)
s.t. (8), (13) − (16), (18) − (29), (31) − (41), (43) − (45), (55) − (58).
(60)
In this robust counterpart, the budgets of uncertainty Γ1sδ+D , Γ2sδ , Γ3sδ
and Γ4sD control the scales of the uncertainty sets for each scenario by
restricting the deviations of demand and deterioration rate from the
nominal values in their associated uncertainty sets. Consequently, larger
values for the budgets of uncertainty Γ1sδ+D , Γ2sδ , Γ3sδ and Γ4sD will result
in higher levels of robustness but lower levels of optimality due to the
fact that more deviations are allowed toward the worst-case in their
uncertainty sets.
In addition, probabilistic guarantees in a chance constraint approach
can be employed to evaluate the lower bound of constraint satisfaction
based on the expected constraint violations. Let x*j represent the robust
solution, and Γi be the budget of uncertainty of constraint i. The viola­
tion probability of constraint i can be expressed as (61) in the following
(Bertsimas & Sim, 2004):
( ) ( )
∑ ∑ Γi − 1
Pr aij x*j + [− ξi0 ̂
bi + a ij xj* ] < bi ⩽1 − Φ √̅̅̅̅̅̅ ,
ξij ̂ (61)
j∈Ji j∈Ji |Ji |
where Φ(⋅) represents the standard normal cumulative distribution
function. A maximum violation probability εi can be specified, and the
minimum value of the budget of uncertainty Γi to maintain the partic­
ular probabilistic guarantees can be stated as (62) in the following:
√̅̅̅̅̅̅
Γi ⩾1 − Φ− 1 (1 − εi ) |Ji |. (62)
5. An improved SAA method using k-means clustering
Since the transportation cost differs due to many factors, such as
traffic regulations, fuel prices, etc., a large number of scenarios is
required to investigate the variations in the transportation cost. Addi­
tionally, the MILP model is NP-hard and, hence, computational time
increases as the number of scenarios increases. The SAA method, based
on Monte Carlo simulation, is used to handle these issues. The idea of the
SAA method is simple, i.e., generating a random sample of the unknown
parameters to approximate the expected value of a function by the
corresponding sample average of the function. The SAA method has
been used extensively in many areas, such as stochastic routing prob­
lems (e.g., Verweij, Ahmed, Kleywegt, Nemhauser, & Shapiro, 2003),
inventory control problems (e.g., Qiu, Sun, & Sun, 2021), supply chain
network design (e.g., Farjana, Mario, Krystel, & Mohammad, 2020;
Guan, Tao, & Sun, 2022), among others.
5.1. The k-means clustering technique in the SAA method
Due to the complexity of the MILP model, a novel approach is used to
obtain samples and set sample sizes that are better representative sce­
narios in the stochastic optimization problem. Specifically, the k-means
clustering technique is used in the SAA method to group similar sce­
narios together, select a representative in each cluster and get a sample
10
Computers & Industrial Engineering 169 (2022) 108224
(c) The best representatives
in the clusters
size equal to the number of clusters. By solving the problem formed with
these representative scenarios, an upper bound can be obtained on the
objective function which is also a real upper bound of the real problem.
Unlike other methods in the literature with the same or larger sample
sizes, this improved SAA method using k-means clustering offers an
opportunity to adaptively control the sample size. According to the so­
lution obtained from each iteration, a t-test is conducted to determine if
the sample size NK should be increased or decreased before the criterion
with a specific tolerance is satisfied. Because the improved SAA method
can select a larger sample size N than that of the basic SAA Nb , it has a
larger probability of converging to the solution of the true problem.
Fig. 3 can better illustrate the use of the k-means clustering technique
in the improved SAA method. In the basic SAA, a sample of Nb scenarios
is selected from the sample space and is used to set up and solve the
model. This process is repeated until a stopping criterion is satisfied. In
the improved SAA method, a sample of N scenarios is selected from the
sample space as shown in Fig. 3(a), the N scenarios are grouped into k
clusters where the scenarios in each cluster are similar to each other as
shown in Fig. 3(b), a most representative scenario is selected from each
cluster as shown in Fig. 3(c), and the k, represented by NK , i.e., NK = k,
for notational convenience, representative scenarios are used to set up
and solve the model. This process is repeated until a stopping criterion is
satisfied.
5.2. The improved SAA method
The steps of the improved SAA method used to solve the robust
counterpart of the MILP model using the k-means clustering technique
are presented as follows:
Step 0: Set the initial number of clusters k, the step sizes q1 and q2
with q2 > q1 and the iteration counter g = 1. Determine the values for
the number of sets of scenarios M, the sample size N, a predefined
tolerance ε, the maximum time limit timemax and the maximum number
of iterations itermax .
Step 1: Randomly generate M independent sets, each withN, of
scenarios. Partition the N scenarios in each set m, for m = 1,2,…,M, into
k clusters using the k-means clustering technique with the transportation
costs as the inputs, and select a representative scenario from each cluster
to form a sample of NK scenarios. Find FNmK , the optimal objective func­
tion value of the SAA problem with the NK scenarios for each setm.
1 ∑
NK
1 ∑
NK
FNmK = max λ profits + (1 − λ)(VaR − tns ). (63)
NK s=1 NK s=1
∑M
Step 2: Calculate FNk = M1 m=1 FNK .
m
FNk is larger than or equal to the
(g) (g)
optimal objective function value of the true problem F* and, thus, can be
regarded as an upper bound of the objective function value of the true
problem.
Step 3: Randomly generate a different sample of N scenarios, with
′
N ≫N. Using the values of the first-stage decision variables CEj , CBj , Yj
′
and Zjk obtained from Step 1 as known parameters, calculate the profit
profits and the tail of the profit distribution tns for each scenario s.
Z. Guan et al. Computers & Industrial Engineering 169 (2022) 108224

Table 2 k←k − q1 only if g > b (b = 2). If the p-value of the test is sufficiently
Performance comparison between SAA and iSAA. small (e.g., p - value < 0.1), set k←k + q2 . Set g←g + 1. Go to Step 1.
Nb M SAA iSAA Step 7: Choose the solution of the scenario with the largest objective
function value among the k scenarios as the final solution. Stop.
Gap (%) Time (s) Gap (%) Time (s)
Three criteria are used to terminate the procedure. The approximate
100 5 0.05 282.3 0.01 255.3 solution is assumed to have converged to the true optimal solution when
10 0.04 335.9 0.00 292.7
200 5 0.01 397.6 0.01 305.6
at least one of them is met.
10 0.02 501.5 0.02 363.9
300 5 0.01 506.3 0.03 336.8 6. Numerical studies
10 0.02 657.1 0.03 405.4
400 5 0.04 622.5 0.01 418.1
10 0.01 758.6 0.02 495.0 In this section, data similar to those of a real fresh product supply
500 5 0.03 843.3 0.01 521.2 chain with some modifications are used to verify the validity of the
10 0.02 925.1 0.01 555.6 proposed model and the performance of the HRSO solution approach.
Avg 0.025 583.02 0.015 394.96 The computational experiments are implemented in Python using the
CPLEX® optimizer3 on a desktop computer with an Intel Core i7 3.60
GHz processor and 8.0 GB RAM.
The retailer purchases from |I| = 5 suppliers (farms, pastures and
iSAA fishing grounds, etc.) which provide |P| = 5 kinds of products, repre­
SAA sented by P1, P2, P3, P4 and P5, with the unit prices ¥20, ¥25, ¥28, ¥26
Variability of transportation cost

high
and ¥29 per kg, respectively. The products are processed at the DC and
then the packaged products are shipped to |J| = 5 physical stores serving
|K| = 10 distinct demand regions. The planning horizon is two years, i.e.,
medium |T| = 24 months.
Meanwhile, according to the historical data, the uncertain trans­
portation costs in the scenarios are randomly generated from uniform
distributions with limits as shown in Table C1. The nominal values of the
low uncertain demands and deterioration rates in the scenarios are randomly
generated from uniform distributions with limits listed in Table C2. The
deviations from the nominal values of the uncertain demands and
0 100 200 300 400 500 deterioration rates are also randomly generated from uniform distribu­
running time (s) tions such that a specific demand or deterioration rate is within the
respective interval defined in Table C2. In addition, some operational
Fig. 4. Comparison between running times of SAA and iSAA. costs are also randomly drawn from uniform distributions with limits
shown in Table C2. These settings are used as defaults in the numerical
∑ ′ ∑ ′
Calculate the mean FN′ = λ N1′ Ns=1 profits +(1 − λ)(VaR − N1′ Ns=1 tns )
(g) studies unless mentioned otherwise.
∑ ′ [ ]2 The location cost of the physical stores is dependent on the candidate
σ 2F(g) = N′1− 1 Ns=1 λprofits + (1 − λ)(VaR − tns ) − FN(g)′
and the variance ̃ sites, the population served, the customer consumption level, etc., and is
generated from the uniform distribution U(5000000, 8000000). The
′
N

of the objective function values of the N scenarios. FN′ is smaller than or

′ (g)
annual interest rates of the medium and long-term loans that the bank
equal to the true optimal objective function value F∗ of the problem and, charges is r = 4.75%, and that of the short-term loans is rτ = 4.35%. In
thus, is a lower bound of the true objective function value. This lower addition, parameters related to trade credit are given in Table C3.
bound is updated if the value is larger than the value of the previous Finally, other model parameters are shown in Table C4.
iteration. The uniform distribution is used to generate values for the uncertain
Step 4: Calculate the optimality gap of the solution based on the parameters so as to simulate the uncertainties in the real-world prob­
lower and upper bounds, as given in the following: lems. Other distributions, such as the normal distribution, may also be
(g) used for this purpose. Actually, the uniform distribution has been widely
F Nk − FN(g)′
gap = . (64) used to generate values for uncertain parameters in the literature (e.g.,
Keyvanshokooh et al., 2016; Rahimi et al., 2017; Bertsimas, Sim, &
(g)
F Nk
Zhang, 2019; Geunes & Su, 2020; Mousavi, Salehi-Amiri, Zahedi, &
Step 5: Go to Step 7 if gap⩽ε, the maximum time limit timemax is
Hajiaghaei-Keshteli, 2021).
reached, or g > itermax ; or continue to Step 6 otherwise.
Step 6: Perform a t-test between the solutions obtained at iterations g
and g − 1 with the following hypothesis. 6.1. Performance of the improved SAA method
(g) (g− 1)
H0 : μ N
′ − μ N
′ =0 This subsection presents computational experiments in solving the
(g− 1) two-stage stochastic optimization model with the HRSO approach uti­
where μ and μ represent the unknown population means of the
(g)
N N lizing the improved SAA method. In reporting the results, SAA repre­
′ ′

objective function values at iterations g and g − 1, respectively. The sents the basic SAA method, and iSAA represents the improved SAA
(g− 1)
corresponding sample means FN′ and FN′
(g)
σ2Fg ′
and sample variances ̃ method. The parameters in the termination criteria are set to ε = 0.001,
N

σ2F(g− 1) are obtained in Step 3 at iterations g and g − 1, respectively. If

and ̃ timemax = 11000 and itermax = 100. Five sample sizes, i.e., Nb = 100,
N
′ 200, 300, 400 and 500 and N = 300, 400, 500, 600 and 700, respec­
the p-value of the test is sufficiently large (e.g., p - value⩾0.2), set tively, and two values of M, i.e., M = 5 and 10, are used. In addition, N is
′

3
https://www.ibm.com/analytics/cplex-optimizer.

11
Z. Guan et al. Computers & Industrial Engineering 169 (2022) 108224

fixed at N = 1000. An initial k = 3, and q1 = 1 and q2 = 2 are used.

′

50,387,563
48,550,825
47,397,285
45,619,856
50,393,485
48,549,566
47,395,958
45,617,238
50,389,845
48,547,456
47,392,520
45,606,512
When the performances of SAA and iSAA are compared, the one with a
smaller optimality gap is better, or the one with less running time is
better if they have the same optimality gap.

20
Table 2 shows the computational performance of SAA and iSAA. The
average optimality gap (Gap) of iSAA is 0.015% and that of SAA is
0.025%, meaning that iSAA can find better solutions. In addition, iSAA

52,537,874
50,207,837
49,877,848
48,547,931
52,537,851
50,207,480
49,876,949
48,547,890
52,537,802
50,207,527
49,875,824
48,547,899
is 148% faster than SAA on average. Overall, using k-means clustering in
SAA can significantly shorten the computation time and improve the
18

solution quality. CPLEX is also used directly to solve these problems, but
its results are not presented because it cannot find optimal solutions
within the pre-specified time limit.
55,639,051
53,309,213
50,979,328
47,649,243
55,638,854
53,309,175
50,979,201
47,649,227
55,638,765
53,309,041
50,979,068
47,649,095
Furthermore, variations in the transportation cost are set to low
(within ± 5% of the mean), medium (within ± 10% of the mean) and
high (within ± 20% of the mean) by varying the limits of the uniform
16

distributions. Results are obtained with Nb = 100, N = 300 and M = 10.

The difference between the SAA and iSAA optimality gaps is subtle
under low, medium and high variations in the transportation cost, thus
58,632,527
55,603,329
51,230,148
49,883,363
58,632,452
55,603,135
51,222,986
49,883,325
58,632,389
55,602,811
51,222,547
49,881,532

the focus will be on running time. As shown in Fig. 4, iSAA outperforms

SAA on all such variations. The running time of SAA is 160%, 141%, and
14

128% of that of iSAA with low, medium and high variations in the
transportation cost, respectively.
59,537,871
57,285,625
51,878,458
50,247,935
59,537,815
57,285,448
51,878,279
50,247,850
59,537,597
57,285,322
51,878,148
50,247,215

6.2. Analyses on the HRSO approach with mean-CVaR

12

When the budgets of uncertainty Γ1sδ+D , Γ2sδ , Γ3sδ and Γ4sD are set to
the same values in a scenarios, Γs is used to collectively represent these
budgets of uncertainty and their values in this subsection. In the
60,632,426
60,332,976
52,033,184
51,733,631
60,631,504
60,332,332
52,032,781
51,733,255
63,630,431
60,331,196
52,032,244
51,733,215

improved SAA method,M = 5, N = 300, N = 1000 and an initial k = 3

′

are used.
Table 3 shows the objective function values for different values of the
10

budgets of uncertainty, the risk aversion parameter λ and the confidence

Objective function values with different budgets of uncertainty, risk aversion parameters and confidence levels.

level β. The value of λ is set to λ = 0.3, 0.5, 0.7 and 0.9 and the value of β
is set to β = 0.5, 0.7 and 0.9. The budget of uncertainty Γs is set to vary in
61,496,362
55,866,398
53,846,876
53,285,650
61,441,641
55,865,846
53,841,510
53,286,284
61,440,144
55,858,433
53,806,569
53,289,417

each scenario s from 0 to 20 in increments of 2. From the results given in

Table 3, the objective function value decreases as the value of either λ or
8

β increases. In addition, as the value of the budgets of uncertainty Γs

increases, the objective function value decreases evidently. Therefore, it
is of significant importance for decision makers to determine the con­
62,639,051
57,309,213
55,979,228
54,649,243
62,638,854
57,309,041
55,979,068
54,649,095
62,638,815
57,309,085
55,978,801
54,649,027

fidence level and the budgets of uncertainty in supply chain

optimization.
6

6.3. Sensitivity analyses of the budgets of uncertainty

64,568,578
59,722,875
58,433,765
57,639,094
64,569,358
59,723,475
58,438,965
57,643,921
64,572,757
59,727,835
58,441,855
57,647,376

The effects of the budgets of uncertainty are studied by changing the

values of the budgets of uncertainty for the uncertain demand and the
deterioration rate under different transportation costs. The confidence
4

level is set to β = 0.9 and the risk aversion parameter is set to λ = 0.5.
The deviations of an uncertain parameter from its nominal value are
made proportional to the nominal value and are controlled by varying
67,177,150
63,873,237
60,579,413
59,277,282
67,177,567
63,880,147
60,573,833
59,278,679
67,174,517
63,878,033
60,578,755
59,278,940

the value of ρ, with ρ = 0.05, 0.15, 0.25 and 0.35, by setting ̂ a ij = ρaij in
aij = aij + ξij ̂
̃ a ij . A larger value of ρ leads to larger deviations and,
2

∑
therefore, a larger uncertainty set. In addition,U1∩∞ = {ξ| j∈Ji |ξij |⩽Γi ,
⃒ ⃒
⃒ ⃒
⃒ξij ⃒⩽1, ∀j ∈ Ji }, as mentioned in Section 4, represents the uncertainty
73,279,079
68,949,089
67,619,125
65,289,168
73,279,029
68,949,065
67,619,082
65,289,152
73,278,963
68,948,999
67,618,758
65,288,898

set, where the budget of uncertainty Γi can control the size of the un­
certainty set. Thus, ρ and Γi can influence the true values of the uncer­
tain parameters simultaneously. For each of the uncertain parameters
Γs

(demand and deterioration rate), each of the budgets of uncertainty

Γ1sδ+D , Γ2sδ , Γ3sδ and Γ4sD varied from its minimum value to its maximum
0.3
0.5
0.7
0.9
0.3
0.5
0.7
0.9
0.3
0.5
0.7
0.9

value while the other budgets of uncertainty are kept at 0. A relative

λ

[ ]/
change in the expected profit is defined as ER (profit) − EN (profit)
EN (profit) × 100%, where ER (profit) and EN (profit) represent the robust
Table 3

0.5

0.7

0.9

and nominal expected profits, respectively. The plots of this relative

change in the optimal expected profit against the different budgets of
β

12
Z. Guan et al.
Fig. 5. Relationship between the expected profit and the budgets of uncertainty.
uncertainty are depicted in Fig. 5. As shown in Fig. 5, if ρ is fixed and
Γ1sδ+D , Γ2sδ , Γ3sδ or Γ4sD varies, the expected profit decreases as the budget
of uncertainty Γ1sδ+D , Γ2sδ , Γ3sδ or Γ4sD increases. When the budgets of
uncertainty Γ1sδ+D , Γ2sδ , Γ3sδ and Γ4sD are all equal to 0, there is no pro­
tection against uncertainty but the expected profit achieves its highest
value. When Γ1sδ+D , Γ2sδ , Γ3sδ and Γ4sD are at their respective maximum
values, maximum protection is attained at the expense of reduced ex­
pected profits. In addition, a smaller value of ρ results in a larger ex­
pected profit if the budgets of uncertainty are fixed. Hence, the worst-
case expected profit for a smaller value of ρ is better than that for a
larger value of ρ since the maximum deviation is smaller.
Relationships between probabilities of constraint violation and the
budgets of uncertainty are plotted in Fig. 6. As shown in Fig. 6, the
constraint violation probabilities decrease as the budgets of uncertainty
increase, because a larger value of a budget of uncertainty tends to
provide more protection and robustness. The constraint violation
probability reaches 0 when the corresponding budget of uncertainty is at
its maximum value.
6.4. Comparison of the HRSO and the nominal SP approaches
A comparison between the HRSO and the nominal SP approaches is
performed. When the budgets of uncertainty are all equal to 0, the HRSO
approach reduces to the nominal SP approach. Fig. 7 compares the
optimal objective function values between the HRSO and the nominal SP
13
Computers & Industrial Engineering 169 (2022) 108224
approaches with different values of λ when β = 0.9 and Γ1sδ+D = Γ2sδ =
Γ3sδ = Γ4sD = 10. The optimal objective function values of both the
HRSO and the nominal SP approaches all decrease as λ increases. The
results indicate that the optimal objective function value of the nominal
SP approach is larger than that of the HRSO approach.
To a certain extent, the confidence level β represents the intensity of
a decision maker’s aversion attitude toward risks. The larger the value of
β, the greater the likelihood of the decision maker for being more risk
averse in avoiding catastrophic events. The supply chain expected profit
probability distributions are compared under different values of β in
Fig. 8. As shown in Fig. 8, the probability distribution of the supply chain
expected profit of 100 scenarios is more concentrated when the decision
makers are more risk averse, i.e., the HRSO approach with CVaR and
with λ = 0.5 and Γ1sδ+D = Γ2sδ = Γ3sδ = Γ4sD = 10, than when they are
risk-neutral with λ = 1 under the nominal SP approach. The difference
between the maximum and the minimum values of the supply chain
expected profit is relatively large when the decision makers are risk-
neutral. The distribution becomes more concentrated as the value of β
becomes larger. Hence, although the HRSO approach has a small
probability of reaching a large supply chain expected profit, it also has a
large probability of avoiding a relatively small supply chain expected
profit. More comparison results are presented in Table 4. As Table 4
shows, the supply chain expected profit of the HRSO approach with
CVaR is 0.089%, 0.489% and 0.595% lower than that of the nominal SP
approach with λ = 1 when β = 0.50, β = 0.90 and β = 0.95,
Z. Guan et al.
Fig. 6. Relationship between constraint violation probability and the budgets of uncertainty.
Fig. 7. Comparison between the optimal objective function values of the HRSO
and the nominal SP approaches.
respectively, meaning that the supply chain expected profit slightly
decreases as β increases in the HRSO approach with CVaR. In addition,
the standard deviations of the supply chain expected profit of the HRSO
approach with β = 0.50, β = 0.90 and β = 0.95 are 62.97%, 25.61% and
20.48% of those of the nominal SP approach, respectively. Furthermore,
as the value of β increases, the standard deviation of the expected profit
decreases with only a marginal decrease in the expected profit. The
14
Computers & Industrial Engineering 169 (2022) 108224
above results show that the HRSO approach with CVaR has the ability to
make tradeoffs between optimality and robustness.
6.5. Impacts of the financial sources
The impacts of the availability of capital budget, trade credit and
bank loans on the supply chain expected profit are explored in the
following. The results are presented in Figs. 9–11 and Table 5. Figs. 9–11
show that the availabilities of these financial sources have great impact
on the supply chain expected profit. As shown in Fig. 9, larger amount of
bank loans contributes to considerable increase in expected profit of up
to 90%. In addition, the impact of the availability of bank loans on the
supply chain expected profit is different at different ranges of bank
loans. Obviously, the initial increase in bank loans results in pronounced
enhancement in supply chain expected profit while the enhancement
slows down when the amount of bank loans further increases.
As shown in Table 5, the purchase cost, transportation cost,
remaining inventory cost and freshness-keeping cost increase evidently
as the available amount of bank loans increases. In contrast, shortage
cost and transportation cost decrease as the maximum available amount
of bank loans increases. The order quantity properly increases when the
amount of bank loans increases, leading to the increase in transportation
cost. However, unsatisfied customer demand decreases, resulting in a
reduction in shortage or increase in surplus inventory. Furthermore, the
responses of costs to the variation in the maximum available bank loans
are different. For instance, transportation cost and purchasing cost in­
crease up to 29% and 33%, respectively, when the maximum amount of
available bank loans increases by 10%, but decreases by 12% and 18%,
Z. Guan et al. Computers & Industrial Engineering 169 (2022) 108224

Fig. 8. Supply chain expected profit distributions of 100 scenarios.

Table 4
Comparison of supply chain expected profit and standard deviation.
The expected Profit Standard Standard
profit gaps deviation of deviation
profit ratios

Nominal SP 61,637,788 – 491,552 –

withλ = 1.0
HRSO with β = 61,583,103 –0.089% 309,522 62.97%
0.50 and λ =
0.5
HRSO with β = 61,336,579 –0.489% 125,873 25.61%
0.90 and λ =
0.5
HRSO with β = 61,271,203 –0.595% 100,664 20.48%
0.95 and λ =
0.5

Note: Profit gap = (expected profit obtained by HRSO – expected profit of Fig. 10. Impact of trade credit availability on the supply chain expected profit.
nominal SP)/expected profit of nominal SP. Standard deviation ratio = standard
deviation of the profit obtained by HRSO/standard deviation of the profit ob­
tained by nominal SP.

Fig. 11. Impact of capital budget on the supply chain expected profit.

Fig. 9. Impact of bank loans availability on the supply chain expected profit.
respectively, when the maximum amount of available bank loans

15
Z. Guan et al. Computers & Industrial Engineering 169 (2022) 108224

Table 5
The effects of the change of maximum available bank loans on related costs.
Change percentage Transportation cost Purchasing cost Shortage cost Disposal cost of remaining inventory Transportation cost Freshness- keeping cost
6 6 5 5
+10% 5.753 × 10 2.516 × 10 1.055 × 10 77,739 4.035 × 10 7.687 × 105
+8% 5.493 × 106 2.483 × 106 1.071 × 105 75,046 4.062 × 105 7.525 × 105
+6% 5.427 × 106 2.395 × 106 1.078 × 105 74,047 4.089 × 105 7.362 × 105
+4% 4.968 × 106 2.124 × 106 1.089 × 105 73,845 4.108 × 105 7.331 × 105
+2% 4.704 × 106 1.920 × 106 1.095 × 105 73,787 4.118 × 105 7.255 × 105
0 4.443 × 106 1.894 × 106 1.099 × 105 73,761 4.126 × 105 7.201 × 105
–2% 4.241 × 106 1.886 × 106 1.102 × 105 73,458 4.132 × 105 7.136 × 105
–4% 4.156 × 106 1.851 × 106 1.115 × 105 73,126 4.144 × 105 7.105 × 105
–6% 4.088 × 106 1.756 × 106 1.121 × 105 72,589 4.145 × 105 7.092 × 105
–8% 3.923 × 106 1.685 × 106 1.125 × 105 72,104 4.151 × 105 6.985 × 105
–10% 3.896 × 106 1.554 × 106 1.134 × 105 71,863 4.153 × 105 6.955 × 105

decreases by 10%. Comparative results show that the reaction of each
cost is stronger to increases than to decreases in the availability of bank
loans, as shown in Table 5.
Similar tendency in expected profit to that in Fig. 9 is demonstrated
in Fig. 10 when the availability of trade credit changes. Marginal anal­
ysis results are also shown in these figures that present the changes in the
supply chain expected profit when the interest rate of bank loans rτ in­
creases by 1% or the permissible delays in payment of trade credit φi
increases by 1 period. In addition, the supply chain expected profit is
more sensitive to the change in φi than to that in rτ . Therefore, decision
makers are recommended to pay more attention to permissible delays in
payment of trade credit than to interest rate of bank loans.
As shown in Fig. 11, the response curve of the supply chain expected
profit to the capital budget level is “S” shaped. The supply chain ex­
pected profit increases slowly when the capital budget level is low, in­
creases dramatically when the capital budget level increases to a certain
amount, and slows down again when the capital budget level is high
enough. Hence, a large capital budget does not always warrant a large
profit, as shown by the “S” shaped curve in the figure. However, the
model does not have feasible solutions when the capital budget level is
too low. Therefore, it is of paramount importance for decision makers to
plan the capital budget properly, so as to avoid under or over spending
on capital investment.
7. Conclusions
This study proposes a two-stage stochastic optimization model for a
multi-period, multi-product capital-constrained fresh product supply
chain incorporating risk aversion and financial flow for an omnichannel
retailer. After linearization, the two-stage stochastic optimization model
becomes a MILP model. As a major contribution, a HRSO approach is
developed for fresh product supply chain optimization. The trans­
portation cost is assumed to be predictable and is used to generate
scenarios. Under each scenario of the transportation cost, an “interval +
polyhedral” uncertainty set is proposed for the customer demand and
the deterioration rate. In addition, the objective function of the model is
to maximize a convex combination of the total supply chain expected
profit and the CVaR. An improved SAA method using the k-means
clustering technique is proposed to solve this problem efficiently. Nu­
merical studies are conducted to verify the practicality of the model and
the efficiency of the solution approach. Several important managerial
insights can be derived from the model, the solution approach and the
numerical studies, as presented in the following.
(1) The comparative studies show that the proposed HRSO approach
with mean-CVaR can efficiently prevent fluctuations in supply
chain expected profit and hedge against uncertainties to avoid
solutions with high risks. Therefore, decision makers can utilize
the proposed HRSO approach with mean-CVaR to design more
efficient and robust supply chains. The proposed model can
provide more reliable decision support for decision makers in
real-world supply chain management.
(2) Greater risk aversion can be reached by decision-makers by
decreasing the value of λ and/or increasing the value of β to
obtain more conservative results for the two-stage stochastic
optimization model with mean-CVaR. Risk-averse solutions
decrease the expected profit of the supply chain but increase the
robustness in worst-case scenarios as compared to risk-neutral
solutions. Therefore, decision makers should make tradeoffs be­
tween the profitability and robustness of the supply chain ac­
cording to their own aversion attitudes toward risks.
(3) The analysis of the numerical results revealed that the supply
chain expected profit can be significantly increased by using
trade credit and bank loans, and the use of trade credit is clearly
more beneficial than the use of bank loans. In addition, the re­
action of each cost is stronger to increases than to decreases in the
availability of bank loans. Thus, decision makers should reason­
ably manage these financial sources.
(4) The expected profit and the constraint violation probabilities
decrease as the budgets of uncertainty increase. Larger values of
budgets of uncertainty provide more protection and robustness
but less profitability. When the budgets of uncertainty are greater
than certain values, the constraint violation probabilities may
approach 0, but the expected profit may become unacceptably
low, suggesting that moderate values of the budgets of uncer­
tainty may provide good tradeoffs between profitability and
robustness.
(5) The computational results demonstrate that the improved SAA
outperforms the basic SAA in terms of computation time and
solution quality.
Future research can be extended in the following directions. First, the
proposed solution approach is based on the “interval + polyhedral”
uncertainty set. However, it is worthwhile to propose other types of
uncertainty sets and conduct comparisons between the performances of
these uncertainty sets. Second, this work only focused on the un­
certainties caused by the business-as-usual factors but did not consider
disruption risks caused by catastrophic events. However, catastrophic
events can disrupt the supply chain with serious losses in facilities, ve­
hicles, materials and even lives. It would be helpful to consider how
disruption risks impact the robustness of the supply chain (Guan et al.,
2022). Moreover, it is valuable to investigate how financing methods
impact the ability of the supply chain to deal with disruption risks.
Finally, this work only considered the decision maker’s risk aversion
behavior. However, in practical applications, the supply chain members
may have other behaviors, such as fairness concerns, reference depen­
dence and reciprocal preferences. Therefore, the incorporation of other
behaviors in supply chain design and optimization problems is a worthy
research extension (Qiu et al., 2021; Yu et al., 2021).

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Z. Guan et al. Computers & Industrial Engineering 169 (2022) 108224

CRediT authorship contribution statement interests or personal relationships that could have appeared to influence
the work reported in this paper.
Zhimin Guan: Conceptualization, Methodology, Resources, Super­
vision, Writing – review & editing. Yuxia Mou: Investigation, Formal Acknowledgements
analysis, Methodology, Software, Writing – original draft. Minghe Sun:
Methodology, Supervision, Project administration, Writing – review & This work was partially supported by the National Natural Science
editing. Foundation of China [grant number 70972100].

Declaration of Competing Interest

The authors declare that they have no known competing financial

Appendix A. The main notations in the model

The following notations are used in the proposed model.

Sets:

I Set of suppliers
J Set of physical stores
K Set of customers
T Set of time periods in the planning horizon
P Set of products
S Set of scenarios for transportation costs
Θ Set of bank loan periods
Parameters:
n Number of planning horizons
fj Fixed cost of establishing physical store j
vp Unit price of product p
tr1sti , tr2stj , tr3stjk Unit transportation cost from supplier i to the DC, from the DC to physical storej, from physical store j to customer k in time period t under scenario s
trstjj′ Unit transshipment cost from physical store j to physical store j for j ∕
′ ′
= j in time period t in scenario s
frjp Unit freshness-keeping cost of product p at physical store j
prpi Unit purchasing price of product p from supplier i
stjp Unit shortage cost of product p at physical store j
hdjp Unit disposal cost of remaining inventory of product p at physical store j
Injp Unit information processing cost of online order for product p at physical store j
Pap Unit processing cost of product p at the DC
ICj Inventory capacity of physical store j
IPj Information processing capacity of online orders in physical store j
djk Distance between physical store j and customer k
Rmax Maximum coverage area of a physical store
μ Proportion of online consumers
rti Interest (penalty) rate for delay in repayment of trade credit received from supplier i
r Interest rate of medium and long-term bank loans for the construction of physical stores
rτ Interest rate of a τ-period bank loan
otpi Maximum available trade credit for purchasing product p from supplier i in time period t
bd1 Maximum available bank loans for establishing physical stores
bd2τ Maximum available short-term τ-period bank loans
B Maximum available capital budget
φi Permissible delay in repayment of trade credit without interest charges for supplier i
β The confidence level of the decision maker
λ The risk aversion parameter
s
̃
δ The deterioration rate of product p transported from the DC to physical store j in time period t under scenario s
tp
δstp The nominal deterioration rate of product p transported from the DC to physical store j in time period t under scenario s
̂δ s The deterioration rate deviation of product p transported from the DC to physical store j in time period t under scenario s
tp
G A big number
Prs Probability of scenario s occurring
tns The tail of the profit distribution under scenario s
̃s
D The demand of product p of customer k in time period t under scenario s
tpk
Dstpk The nominal demand of product p of customer k in time period t under scenario s
̂s
D The demand deviation of product p of customer k in time period t under scenario s
tpk
Decision variables:
Yj Binary variable with Yj = 1 if a physical store is open at location j and Yj = 0 otherwise
Zjk Binary variable with Zjk = 1 if customer k is served by physical store j and Zjk = 0 otherwise
Vtsτ Binary variable with Vtsτ = 1 if a τ-period bank loan is approved in time period t under scenario s and Vtsτ = 0 otherwise
EXstpj Remaining inventory of product p in physical store j at the end of time period t under scenario s
QTstpjj′ Quantity of product p transshipped from physical store j to physical store j for j ∕
′ ′
= j in time period t under scenario s
s
WItpi Quantity of product p purchased from supplier i in time period t under scenario s
WQstpj Quantity of product p shipped from the DC to physical store j in time period t under scenario s
(continued on next page)

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(continued )
Sets:

WCstpjk Quantity of product p supplied from physical stores j to consumer k in the service area in time period t under scenario s
CLstpj Quantity of product p backordered in physical store j in time period t under scenario s
TCstpi Amount of trade credit extended by supplier i in time period t for purchasing product p under scenario s
PTtts ′ pi Amount of repayment to supplier i in time period t for the trade credit received in time period t for procuring product p under scenario s
′

CEj Amount of bank loans approved to establish physical store j at the beginning of the planning horizon
BCstτ Amount of τ-period bank loans approved in time period t
RPstt′ τ Amount of repayment in period t for the τ-period bank loans received in time period t under scenario s
′

PCstpτ Amount of τ-period bank loans used for procuring product p in time period t under scenario s
PBstp Available capital budget for purchasing product p in time period t under scenario s
CBj Available capital budget for the construction of physical store j
profits The total supply chain profit under scenario s

Appendix B. Construction of the robust counterparts with the “Interval þ Polyhedral” uncertainty set

B.1 Construction of the “interval + polyhedral” uncertainty set

Constraint (52) can be rewritten as follows by introducing x0 = − 1:

∑ ∑
aij xj + bi x0 + [max{ξi0 ̂
b i x0 + a ij xj }]⩽ 0, ∀j ∈ Ji .
ξij ̂ (B.1)
ξ∈U
j j

After defining ξi = { ξi0 ,{ξij ,∀j ∈ Ji }},Ai = {bi ,{aij ,∀j ∈ Ji }}, A b i ,{ ̂
̂ i = {̂ a ij ,∀j ∈ Ji }}, X = {x0 , {xj , ∀j ∈ Ji }} and Ji = Ji ∪ {0}, (B.1) can be rewritten
′

as follows:
∑
̂ i X}⩽0.
Ai Xj + max{ξi A (B.2)
′
ξ∈U
j∈Ji

∑ ⃒ ⃒
The “interval + polyhedral” uncertainty set U1∩∞ = {ξ| j∈J′ |ξj |⩽Γi , ⃒ξj ⃒⩽1, ∀j ∈ Ji } can be denoted as follows using conic representation by defining
′

i
⃒
P1 = { IC×C ; 01×C } , p1 = { 0C×1 ; Γi } and K1 = { { ∈ RC + 1 ⃒‖θ‖1 ⩽t}:
U1∩∞ = {ξ|P1 ξj + p1 ∈ K1 , P∞ ξj + p∞ ∈ K∞ }. (B.3)
⃒ ′⃒
After defining the dual variables y1 = { wi ; γ 1 } ∈ RC×1 and y2 = { vi ; γ 2 } ∈ RC×1 , where C is the cardinality of the uncertainty set, i.e., C = ⃒Ji ⃒,
and using the dual cones K∗1 = K∞ and K∗∞ = K1 , the inner maximization problem in (B.2) can be expressed as (B.4) below:
̂ i X : P1 ξ + p1 ∈ K1 , P∞ ξ + p∞ ∈ K∞ }.
max{ξi A (B.4)
ξ∈U

The conic dual of the above problem can be formulated as follows:

̂ i X, ‖wi ‖ ⩽γ1 , ‖vi ‖ ⩽γ2 }.
min{γ 1 + Γγ2 : wi + vi = A 1 ∞ (B.5)
∑ ⃒⃒ ⃒⃒ ⃒ ⃒
Furthermore, ‖wi ‖1 = j∈J′ wij and ‖vi ‖∞ = maxj∈J′ ⃒vij ⃒ can be replaced by γ1 and γ 2 , respectively. Therefore, (B.6) in the following can be deduced
i i

from (B.5):
∑⃒ ⃒ ⃒ ⃒
min{ ⃒wij ⃒ + Γi max
′
⃒vij ⃒ : wi + vi = A
̂ i X, wij ⩾0, vij ⩾0, wi ⩾0, vi ⩾0}. (B.6)
w,v ′ j∈Ji
j∈Ji

Because (B.6) is a minimization problem, it can be equivalently written as follows:

∑⃒ ⃒ ⃒ ⃒
(B.7)
′
min{ ⃒wij ⃒ + Γi ui : ui ⩾⃒̂A i X − wij ⃒, wij ⩾0, ui ⩾0, ∀j ∈ Ji }.
w,u ′
j∈Ji

An equivalent problem of (B.7) can be written into (B.8) as follows:

∑
̂ i |X| − wij , ∀j ∈ J ′ , wij ⩾0, ui ⩾0}.
min{ wij + Γi ui : ui ⩾ A i (B.8)
w,u ′
j∈Ji

After incorporating the above conic dual into the robust counterpart constraint, the following robust counterpart can be obtained:
⎧ ∑A X + ∑w + Γ u ⩽0
⎪ i ij i i
⎪
⎪ j∈J′ ′
⎨ j∈J
i i
. (B.9)
⎪
⎪ ̂ i |X|, ∀j ∈ J ′
ui + wij ⩾ A
⎪
⎩ i
′
ui ⩾0, wij ⩾0, ∀j ∈ Ji

Since x0 = − 1 and A b i , {̂
̂ i = {̂ a ij , ∀j ∈ Ji }}, (B.9) is equivalently rewritten as follows:

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Z. Guan et al. Computers & Industrial Engineering 169 (2022) 108224

⎧∑ ∑
⎪
⎪ aij xj + [ wij + wi0 + Γi ui ]⩽bi
⎪
⎪ j∈Ji
⎪
⎨ j∈Ji
⃒ ⃒
ui + wij ⩾̂ a ij ⃒xj ⃒, ∀j ∈ Ji . (B.10)
⎪
⎪
⎪
⎪ u i + w i0 ⩾ ̂
b i
⎪
⎩
ui ⩾0, wij ⩾0, wi0 ⩾0, ∀j ∈ Ji
⃒ ⃒
After replacing ⃒xj ⃒ with χ j and introducing − χ j ⩽xj ⩽χ j , problem (B.10) can be formulated as (B.11) in the following:
⎧∑ ∑
⎪
⎪ aij xj + [ wij + wi0 + Γi ui ]⩽bi
⎪
⎪ j∈Ji j∈Ji
⎪
⎪
⎪
⎨ ui + wij ⩾̂ a ij χ j , ∀j ∈ Ji
− χ j ⩽xj ⩽ χ j , ∀j ∈ Ji . (B.11)
⎪
⎪
⎪
⎪
⎪
⎪ ui + wi0 ⩾ b i ̂
⎪
⎩
ui ⩾0, wij ⩾0, wi0 ⩾0, ∀j ∈ Ji

B.2 Construction of the robust counterparts

B.2.1 Construction of the robust counterpart for constraints

According to (52) and (53), constraints (9) can be rewritten as follows:
∑ ∑ ∑ s
EXtpj − CLstpj = WQstpj (1 − δstp ) −
s s
QTtpjj ′ − ̂ stpk Zjk + ξstp WQstpj ̂
Dstpk Zjk − max{ ξstpk D δ tp },
′ ′
j ∈J,j ∕
=j k∈K k∈K (B.12)
∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀s ∈ S.
According (B.2), the corresponding inner maximization problem in (B.12) can be defined as
{ }
̂s Ys ,
max ξstp A (B.13)
tp tpj

̂ s = { {D
where ξstp = { − ξstpk ; − ξstp } ,Astp = { {Dstpk }; δstp } , A ̂ s }; ̂ s
δ tp } and Y = { {Zjk }; WQstpj } . According to (B.4) and (B.5), by introducing dual
tp tpk
variables y1 = {wstp ; γ1 } and y2 = {vstp ; γ 2 }, the conic dual of the above problem can be written as follows:
⃦ ⃦ ⃦ ⃦
̂ s Y, ⃦
min{γ1 + Γ1sδ+D γ2 : wstp + vstp = A
⃦ ⃦ ⃦
⃦wstp ⃦ ⩽γ1 , ⃦vstp ⃦ ⩽γ2 , ∀t ∈ T, ∀p ∈ P, ∀s ∈ S}. (B.14)
γ1 ,γ 2 tp
1 ∞
⃦ ⃦ ⃒ ⃒ ⃒ ∑ ⃒ ⃦ ⃦ ⃒ ⃒ ⃒ ⃒
⃦ ⃦ ⃒ ⃒ ⃒ ⃒ ⃦ ⃦ ⃒ ⃒ ⃒ ⃒
Furthermore, after ⃦wstp ⃦ = ⃒wstp ⃒ = ⃒w1stp + k∈K w1stpk ⃒ and ⃦vstp ⃦ = u1sδ+D = max{ ⃒vstp ⃒, ⃒vstpk ⃒} replace γ 1 and γ2 , respectively, the following result
1 ∞
can be obtained:
{⃒ ⃒ }
⃒ ⃒ ̂ s Y, ∀t ∈ T, ∀p ∈ P, ∀s ∈ S .
min ⃒wstp ⃒ + Γ1sδ+D u1sδ+D : wstp + u1sδ+D = A tp (B.15)
w,u
⃒ ⃒⃒ ⃒
⃒ ⃒⃒ ⃒
By introducing u1sδ+D = max{ ⃒vstp ⃒, ⃒vstpk ⃒} , the minimization problem (B.15) can be equivalently written as follows:
⃒ ⃒ ⃒ s ⃒
⃒ ⃒ ⃒̂ s ⃒
min{⃒wstp ⃒ + Γ1sδ+D u1sδ+D : u1sδ+D ⩾⃒ A tp Y − wtp ⃒, ∀t ∈ T, ∀p ∈ P, ∀s ∈ S}. (B.16)
w,u

Furthermore, an equivalent form of (B.16) is (B.17) as follows:

⃒ ⃒
⃒ ⃒ ̂ s |Y| − ws , ws ⩾0, u1s ⩾0, ∀t ∈ T, ∀p ∈ P, ∀s ∈ S}.
min{⃒wstp ⃒ + Γ1sδ+D u1sδ+D : u1sδ+D ⩾ A tp tp tp δ+D (B.17)
w,u

The following robust counterpart is obtained by incorporating the above conic dual into the robust counterpart constraint:
⎧ s
⎪
⎪ A Y + wstp + Γ1sδ+D u1sδ+D ⩽0, ∀t ∈ T, ∀p ∈ P, ∀s ∈ S
⎨ tp
̂ s |Y|, ∀t ∈ T, ∀p ∈ P, ∀s ∈ S
u1sδ+D + wstp ⩾ A tp
. (B.18)
⎪
⎪
⎩ s s
u1 ⩾0, w ⩾0, ∀t ∈ T, ∀p ∈ P, ∀s ∈ S
δ+D tp

Since Astp = {{Dstpk }; δstp }, A ̂ s = {{ D ̂ s }; ̂ s

δ tp } and Y = {{Zjk }; WQstpj }, (B.18) is equivalently rewritten as follows:
tp tpk
⎧ ∑ ∑
s s s
⎪ s s s s
⎪ EXtpj − CLtpj = WQtpj (1 − δtp ) − Γ1δ+D u1δ+D − w1tp − w1stpk − Dstpk Zjk
⎪
⎪
⎪
⎪ k∈K k∈K
⎪
⎪
⎪
⎪ ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀s ∈ S
⎨
u1δ+D + w1tp ⩾̂
s s s
δ tp WQstpj , ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀s ∈ S . (B.19)
⎪
⎪
⎪
⎪
⎪
⎪ s
̂ tpk Zjk , ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀k ∈ K, ∀s ∈ S
⎪
⎪ u1sδ+D + w1stpk ⩾ D
⎪
⎪
⎩ u1δ+D ⩾0, w1tp ⩾0, w1stpk ⩾0, ∀t ∈ T, ∀p ∈ P, ∀k ∈ K, ∀s ∈ S
s s

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B.2.2 Construction of the robust counterpart for constraints (10)

The construction is similar to that of constraints (9). The robust counterpart for constraints (10) can be formulated as follows:
⎧ ∑ ∑
⎪
⎪ WQstpj (1 − δstp ) − Γ2sδ u2sδ − w2stp = EXtpj
s
+ s
WCtpjk + s
QTtpjj′,
⎪
⎪
⎪
⎪ k∈K ′ ′
j ∈J,j ∕=j
⎪
⎨
∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀s ∈ S (B.20)
⎪
⎪ s
⎪
⎪ s s ̂
u2δ + w2tp ⩾ δ tp WQstpj , ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀s ∈ S
⎪
⎪
⎪
⎩ u2sδ ⩾0, w2stp ⩾0, ∀t ∈ T, ∀p ∈ P, ∀s ∈ S

B.2.3 Construction of the robust counterpart for constraints (17)

Constraints (17) can be formulated as follows:
∑ ∑ s
WQstpj ⋅(1 − δstp ) − max( WQstpj ξstp ̂
δ tp )⩽ICj ⋅Yj , ∀t ∈ T, ∀j ∈ J, ∀s ∈ S. (B.21)
ξ∈U
p∈P p∈P

The following “interval + polyhedral” uncertainty set is considered in each scenario:

(B.22)
s s
Π(̃
δ) = { ̃
δtp = δstp + ξstp̃
δtp |∀t ∈ T, ∀p ∈ P, ∀s ∈ S, ξstp ∈ U} , ,

where
∑∑
U = { ξ| ξstp ⩽Γ3sδ , 0⩽ξstp ⩽1, ∀t ∈ T, ∀p ∈ P, ∀s ∈ S} . (B.23)
t∈T p∈P

Based on (B.22) and (B.23), the inner maximization problem in (B.21) can be expressed as
∑ s
max WQstpj ξstp ̂
δ tp
ξ∈U
p∈P
∑∑
s.t. ξstp ⩽Γ3sδ , ∀s ∈ S, (B.24)
t∈T p∈P

0⩽ξstp ⩽1, ∀t ∈ T, ∀p ∈ P, ∀s ∈ S.

Let u3sδ and w3stp be the dual variables of the constraints in (B.24). The dual of (B.24) can be written as (B.25) below:
∑
min Γ3sδ u3sδ + w3stp
p∈P
s (B.25)
s.t. u3sδ + w3stp ⩾̂
δ tp WQstpj , ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀s ∈ S,
u3sδ ⩾0, w3stp ⩾0, ∀t ∈ T, ∀p ∈ P, ∀s ∈ S.

Since problem is feasible and bounded for all Γ3sδ , by the strong duality theorem, the dual problem is also feasible and bounded, and thus their
objective function values are the same (Bertsimas & Sim, 2004). Hence, the objective function values of the inner maximization problem in and the
dual problem are the same. The robust counterpart of constraints is then obtained as follows:
⎧∑ ∑
⎪
⎪ WQstpj (1 − δstp ) − Γ3sδ u3sδ − w3stp ⩽ICj Yj , ∀t ∈ T, ∀j ∈ J, ∀s ∈ S
⎪
⎪
⎨ p∈P p∈P
s . (B.26)
⎪
⎪ u3sδ + w3stp ⩾̂ δ tp WQstpj , ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀s ∈ S
⎪
⎪
⎩
u3sδ ⩾0, w3stp ⩾0, ∀t ∈ T, ∀p ∈ P, ∀s ∈ S

B.2.4 Construction of the robust counterpart for constraints

Constraints can be rewritten as follows:
∑ ∑ ∑
CLtpj ⩾ Dstpj Zjk +
s ̂ stpk Zjk −
ξstpk D s
WCtpjk , ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀s ∈ S. (B.27)
k∈K k∈K k∈K

In the set induced RO method, the aim is to find solutions that remain feasible for any ξstpk in a given uncertainty set U in order to immunize against
uncertainty. Thus, problem can be rewritten as follows:
∑ ∑ ∑
s
CLtpj ̂ stpk Zjk } −
⩾ Dstpk Zjk + max{ ξstpk D s
WCtpjk , ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀s ∈ S. (B.28)
U
k∈K k∈K k∈K

The following “interval + polyhedral” uncertainty set is considered in each scenario.

̃ = {D
Π(D) ̂ stpk ,
̃ stpk = Dstpk + ξstpk D ∀t ∈ T, ∀p ∈ P, ∀k ∈ K, ∀s ∈ S, ξstpk ∈ U}. (B.29)

This “interval + polyhedral” uncertainty set can be described as

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Z. Guan et al. Computers & Industrial Engineering 169 (2022) 108224

⃒
⃒∑∑∑
⃒
U = { ξ⃒ ξs ⩽Γ4sD , 0⩽ξstpk ⩽1, ∀t ∈ T, ∀p ∈ P, ∀k ∈ K, ∀s ∈ S} . (B.30)
⃒ t∈T p∈P k∈K tpk

Based on (B.29) and (B.30), the inner maximization problem in can be expressed as
∑
̂ stpk Zjk
max ξstpk D
ξ∈U
k∈K
∑∑∑
s.t. ξstpk ⩽Γ4sD , ∀s ∈ S, (B.31)
t∈T p∈P k∈K

0⩽ξstpk ⩽1, ∀t ∈ T, ∀p ∈ P, ∀k ∈ K, ∀s ∈ S.

After introducing u4sD and w4stpk as dual variables associated with the constraints in (B.31), the dual problem of (B.31) is obtained as
∑
min Γ4sD u4sD + w4stpk
k∈K

̂ stpk Zjk , (B.32)

s.t. u4sD + w4stpk ⩾ D ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀k ∈ K, ∀s ∈ S,
u4sD ⩾0, w4stpk ⩾0, ∀t ∈ T, ∀p ∈ P, ∀k ∈ K, ∀s ∈ S.

Since problem (B.31) is feasible and bounded for all Γ4sD , by the strong duality theorem, the dual problem (B.32) is also feasible and bounded, and
thus their objective function values are the same (Bertsimas & Sim, 2004). In this way, the objective function values of the inner maximization problem
in (B.28) and the dual problem (B.32) are the same. Hence, the robust counterpart of constraints (42) is obtained as follows:
⎧ s ∑ s ∑ ∑
⎪ CLtpj ⩾ Dtpk Zjk −
⎪
s
WCtpjk + Γ4sD u4sD + w4stpk , ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀s ∈ S
⎪
⎨ k∈K k∈K k∈K

̂ stpk Zjk , ∀t ∈ T, ∀p ∈ P, ∀j ∈ J, ∀k ∈ K, ∀s ∈ S . (B.33)

⎪
⎪ u4sD + w4stpk ⩾ D
⎪
⎩
u4sD ⩾0, w4stpk ⩾0, ∀t ∈ T, ∀p ∈ P, ∀k ∈ K, ∀s ∈ S

Appendix C. Input Data for the Numerical Studies

See Tables C.1–C.4.

Table C1
The uniform distributions used to generate the transportation costs (¥/kg).
From a supplier to the DC U(3, 6)

From the DC to a physical store U(2, 5)

From a physical store to a customer U(1.2, 1.8)
Between two physical stores U(1.5, 3)

Table C2
The uniform distributions used to generate the parameters about the products.
P1 P2 P3 P4 P5

Nominal demands (kg) U(2100, 2850) U(2350, 2950) U(2150, 2650) U(2250, 2750) U(2450, 2950)
Nominal deterioration rate U(0.01, 0.05) U(0.06, 0.12) U(0.05, 0.1) U(0.08, 0.12) U(0.07, 0.14)
Freshness-keeping cost (¥/kg) U(2, 3) U(2, 3) U(3, 4) U(4, 5) U(5, 7)
Shortage cost (¥/kg) U(1, 2) U(1, 2) U(2, 3) U(2, 3) U(3, 5)
Purchasing cost (¥/kg) U(3, 6) U(3, 6) U(10, 16) U(10, 16) U(15, 20)
Disposal cost (¥/kg) U(2, 4) U(2, 4) U(3, 6) U(3, 6) U(4, 8)
Information processing cost (¥/kg) U(0.1, 0.2) U(0.1, 0.2) U(0.1, 0.2) U(0.1, 0.2) U(0.1, 0.2)
Processing cost at the DC(¥/kg) U(0.1, 0.5) U(0.1, 0.5) U(0.1, 0.5) U(0.5, 1) U(0.5, 1)

21
Z. Guan et al.
Table C3
Trade credit characteristics.
Supplier rti φi (month)
1 1.5% 1 network design and operations under disruption risks, in Khojasteh, J. and Xu, H.
2 1.2% 1 (eds.), Managing Supply Chain Risks: Strategies, Methods and Applications. Springer,
3 1.6% 2 Forthcoming.
4 1.8% 2 Gutierrez-Alcoba, A., Rossi, R., Martin-Barragan, B., & Hendrix, E. M. T. (2017). A simple
5 1.7% 2 heuristic for perishable item inventory control under non-stationary stochastic
Table C4
Other parameters.
Parameter value
ICj (kg) U(1000000,1003000)
Rmax (km) 3
λ 0.5
G 20,000,000
otpi (¥) U(4000,4150)
bd1 (¥） U(600000, 601500)
bd2τ (¥) U(100000, 101000)
B (¥） U(8000000, 8003000)
μ 0.6
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