Reliable p-median facility location problem: two-stage robust models and algorithms

• We build reliable facility location models using two-stage robust approach.
• Capacity and demand change due to disruption are captured in the modeling framework.
• A customized column-and-constraint generation method is developed to efficiently solve those models.
• Disruption-caused demand change affects system design and should not be ignored if it does exist.

In this paper, we propose a set of two-stage robust optimization models to design reliable p-median facility location networks subject to disruptions. We analyze their structural properties, and implement the column-and-constraint generation method with customized enhancement strategies, which is more effective than Benders cutting plane method. Numerical experiments are performed on real data and management insights on system design are presented. In particular, our study demonstrates the strong modeling capability of two-stage robust optimization scheme by including two practical issues, i.e., demand changes due to disruptions and facility capacities, which receive little attention in reliable distribution network design research. Results show the significant influence of the demand change on the network configuration.