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