Hybrid optimization and simulation to design a logistics network for distributing perishable products

Network designs can strongly depend on product quality decay.Product quality constraints added to MILP for hub location and process allocation.Simulation of MILP solution determines detailed product quality service levels.Quality service levels are updated in an iterative optimization-simulation approach.Results depend on whether locations or allocations are varied across iterations. Dynamics in product quality complicate the design of logistics networks for perishable products, like flowers and other agricultural products. Complications especially arise when multiple products from different origins have to come together for processes like bundling. This paper presents a new MILP model and a hybrid optimization-simulation (HOS) approach to identify a cost-optimal network design (i.e. facility location with flow and process allocation) under product quality requirements. The MILP model includes constraints on approximated product quality. A discrete event simulation checks the feasibility of the design that results from the MILP assuming uncertainties in supply, processing and transport. Feedback on product quality from the simulation is used to iteratively update the product quality constraints in the MILP. The HOS approach combines the strengths of strategic optimization via MILP and operational product quality evaluation via simulation. Results, for various network structures and varying degrees of dynamics and uncertainty, show that if quality decay is not taken into account in the optimization, low quality products are delivered to the final customer, which results in not meeting service levels and excess waste. Furthermore, case results show the effectiveness of the HOS approach, especially when the change from one iteration to the next is in the choice of locations rather than in the number of location. It is shown that the convergence of the HOS approach depends on the gap between the product quality requirements and the quality that can be delivered according to the simulation.