Evaluating cost and reliability integrated performance of stochastic logistics systems

The significance of integrating reliability into logistics performance has been established [The Logistics Performance Index and Its Indicators, World Bank International Trade and Transport Departments, (2010)]. Hence, as a response to the work by the World Bank, the present article aims to evaluate the performance index R_b,d of logistics systems as the probability that a specified demand d can be distributed successfully through multistate arc capacities from the source to the destination under the constraint that the total distribution cost should not exceed the cost limitation b. This article provides a pioneering approach for a straightforward computation of the performance index R_b,d. The proposed algorithm is a hybrid between the polynomial time capacity‐scaling algorithm, which was presented by Edmonds and Karp [JACM 19 (1972)], and the decomposition algorithm, which was presented by Jane and Laih [IEEE (2008)]. Currently, the proposed approach is the only algorithm that can directly compute R_b,d. An illustration of the proposed algorithm is presented. The results of the computational experiments indicate that the presented algorithm outperforms existing algorithms. © 2012 Wiley Periodicals, Inc. Naval Research Logistics, 2012