Integrated location–inventory planning for slow‐moving demands with waiting time limitations

Abstract This paper studies a stochastic facility location problem integrated with inventory and transportation decisions (SFLPIT) for supply chains with slow‐moving stock‐keeping units (SKUs). Local stores often avoid maintaining such SKUs, resulting in customer demand being fulfilled directly by a central distribution center (DC), where the replenishment lead time may exceed the customer's waiting time limitation (WTL). To reduce waiting times, some local stores can operate as retailer‐based DCs to supply neighbor stores. Demand can be satisfied by the DC, retailer‐based DC, or third‐party logistics company, each with different lead times and procurement costs. We formulate the SFLPIT facing uncertain demand and WTL as a scenario‐based two‐stage stochastic programming model. To solve the proposed model, we improve the sample average approximation (SAA) by integrating a dual heuristic procedure. The experiment results show that the improved SAA achieves significant computation time reduction while maintaining solution quality comparable to the standard SAA.