Modeling and Solution of Two-echelon Supply Planning Problems with Market Impact

Abstract

We consider a two-echelon supply chain planning problem with investment decision for market impact to demand for a single manufacturer and a single retailer under demand uncertainty. In the mathematical model. we assume that the average demand increases if the investment is increased. The supply chain planning problem is formulated as a bilevel programming problem. An efficient solution procedure based on Lagrangian relaxation is developed. The effectiveness of the proposed method is confirmed from computational experiments in several case studies.