Unbiased decision making in location-routing problems with uncertain customer demands

In this paper, we focus on a location-routing problem (LRP) in the dairy industry. This problem consists of locating a cold storage warehouse, from which vehicles of limited capacity are dispatched to serve a given number of supermarkets with uncertain service requirements, and determining the order of supermarkets served by each vehicle. First, the LRP is solved by using a classical approach based on a deterministic model where the service requirements, i.e. customer demands, are defined through sample means. Second, we propose an indifference zone approach to the LRP. The indifference zone procedures are specific ranking and selection methods aimed at selecting the best option from a set of alternative configurations. In particular, they attempt to guarantee the probability of correct choice, while minimising the computational effort. The numerical results presented in the paper highlight the risk of biased decision making when mere sample means are used in a deterministic model. In addition, they show the effectiveness of indifference zone approaches to the dairy products distribution activity.