Modular supply chain optimization considering demand uncertainty to manage risk

Supply chain under demand uncertainty has been a challenging problem due to increased competition and market volatility in modern markets. Flexibility in planning decisions makes modular manufacturing a promising way to address this problem. In this work, the problem of multiperiod process and supply chain network design is considered under demand uncertainty. A mixed integer two‐stage stochastic programming problem is formulated with integer variables indicating the process design and continuous variables to represent the material flow in the supply chain. The problem is solved using a rolling horizon approach. Benders decomposition is used to reduce the computational complexity of the optimization problem. To promote risk‐averse decisions, a downside risk measure is incorporated in the model. The results demonstrate the several advantages of modular designs in meeting product demands. A pareto‐optimal curve for minimizing the objectives of expected cost and downside risk is obtained.