Incorporating customers’ reactions in sale network design problem in competitive environment

This paper considers a sale network design problem where the decision marker needs to decide the number and location of the sale stores and the inventory control decisions of central depot and stores in competitive environment. The objective is to determine the optimal numbers and locations of store and system inventory control policy so as to maximize the total profit of the sale network. Sale stores face deterministic customer demand and can be replenished by the central depot. The demand in market can derives from both dedicated customers making a special purpose trips to obtain service and from flow-by customers purchasing service as part of routine pre-planned trip. Customer is assumed to patronize store based on storepsilas utility which is expressed by service time cost in the store and its travel cost to customer. In addition, the customer demand is assumed to be elastic, expanding as the minimal generalized cost decrease or the maximal utility offered by stores increases. We show that this problem can be formulated as a bi-level programming model, for which we proposed a genetic algorithm-based heuristic algorithm to solve it. A numerical example is used to illustrate the application of the proposed model. The computational results show the benefits of having that integrated sale network design framework that includes location and inventory control decisions, and customerpsilas reaction in the same optimization model.