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algorithms Article DualMarketFacilityNetworkDesignunder BoundedRationality D.G.Mogale1,GeetLahoti 1,ShashiBhushanJha1,ManishShukla2,NarasimhaKamath3 andManojKumarTiwari 1,* ID 1 Departmentof Industrial&SystemsEngineering, IndianInstituteofTechnology,Kharagpur721302, India; dgmogle@gmail.com(D.G.M.);geetlahoti2454@gmail.com(G.L.); sbjhakdk2009@gmail.com(S.B.J.) 2 DurhamUniversityBusinessSchool,DurhamUniversity,DurhamDH13LB,UK;scholarmanish@gmail.com 3 O9Solutions,Bangalore560037, India;narasimha.kamath@gmail.com * Correspondence:mktiwari9@iem.iitkgp.ernet.in;Tel.:+91-9734444693 Received: 18February2018;Accepted: 16April2018;Published: 20April2018 Abstract:Anumberofmarkets,geographicallyseparated,withdifferentdemandcharacteristics for differentproducts that sharea commoncomponent, are analyzed. This commoncomponent can eitherbemanufacturedlocally ineachof themarketsor transportedbetweenthemarkets to fulfill thedemand.However,finalassembliesare localizedto therespectivemarkets. Thedecisionmaking challenge iswhether tomanufacture thecommoncomponentcentrallyor locally. Toformulate the underlyingsetting,anewsvendormodelingbasedapproach isconsidered. Thedevelopedmodel is solvedusingFrank-Wolfe linearization techniquealongwithBenders’ decompositionmethod. Further, thepropensityofdecisionmakers ineachmarket tomakesuboptimaldecisions leadingto boundedrationality isconsidered. Theresultsobtainedforboth thecasesarecompared. Keywords: facility network design; newsvendor model; bounded rationality; non-linear programming;decompositionmethod; linearizationtechnique 1. Introduction Globalizationhasbroughtabout largescale integrationofregionaleconomiesandculturethrough effective transportation and communication. International tradehas been the central attention of majorfirms in last coupleofdecades. Economicglobalizationhas led tomajor changes inhowthe companiesdealwith themarket.Anyattempt towardsacompetitiveadvantageatan international levelhas far reachingbenefits to thecompany. Evensupportersofglobalizationagree that thebenefits ofglobalizationarenotwithoutrisks—suchas thosearisingfromvolatilecapitalmovements.With the recent globalmeltdown, capital flows reversing and international trade shrinking, getting into a non-imitablemarketadvantage thathasassumedtheprimeimportance [1]. In thiswork, the focus isonfirmsthatarepresent inmanymarketsacross theglobe.WithAsian countries like IndiaandChinagaining importance in the internationalmarket, thereare issues that globalizationstillhas to ironoutbeforewecanreallyseehomogeneityacross theglobe. Lowincome countriesareslowlygaininggroundin therecentglobalizedworld.Ononehand, thesecountriesoffer hugemarketopportunities,with largegain in the laborcost,but ithas itselfassociatedwith increased logistics cost and foreign trade barriers. Considering these paradoxical factors simultaneously, thispaperworksonquantifyingthedecisionofoff-shoringproductionfacilities,modeledbytaking into account the real lifeuncertainties and responsevariances. Inparticular,we consider the case of twoeconomies servedbyafirmmanufacturing twoproducts at two localizedfinal assemblies, using a common componentwhich can either be produced locally or transported froma central setupwhichwould also cause the company to incur respective transportation costs. Each of the markets has respective demand characteristics, selling price, and assembly costs. We intend to Algorithms 2018,11, 54;doi:10.3390/a11040054 www.mdpi.com/journal/algorithms128