Production stage allocation problem in large corporations

This paper studies a strategic-level decision problem on assigning production stages to geographically distributed subsidiaries in a large corporation so as to minimize the fixed cost and the expected value of the production/transportation costs under stochastic demands of customers. The influence of the economies and diseconomies of scale on unit production cost is considered. A nonlinear mixed integer programming model is designed for this problem. A local branching based solution method and a particle swarm optimization based solution method are developed for solving the model. Computational tests on real world data of Shanghai Volkswagen Auto Corp. are conducted. The results show that the proposed model can save about 2.5% of its revenue by comparing with the current decisions.