Integrated Planning of Supply Chain Networks and Multimodal Transportation Infrastructure Expansion: Model Development and Application to the Biofuel Industry

Abstract: As the biofuel industry continues to expand, the construction of new biorefinery facilities induces a huge amount of biomass feedstock shipment from supply points to the refineries and biofuel shipment to the consumption locations, which increases traffic demand in the transportation network and contributes to additional congestion (especially in the neighborhood of the refineries). Hence, it is beneficial to form public‐private partnerships to simultaneously consider transportation network expansion and biofuel supply chain design to mitigate congestion. This article presents an integrated mathematical model for biofuel supply chain design where the near‐optimum number and location of biorefinery facilities, the near‐optimal routing of biomass and biofuel shipments, and possible highway/railroad capacity expansion are determined. The objective is to minimize the total cost for biorefinery construction, transportation infrastructure expansion, and transportation delay (for both biomass/biofuel shipment and public travel) under congestion. A genetic algorithm framework (with embedded Lagrangian relaxation and traffic assignment algorithms) is developed to solve the optimization model, and an empirical case study for the state of Illinois is conducted with realistic biofuel production data. The computational results show that the proposed solution approach is able to solve the problem efficiently. Various managerial insights are also drawn. It shall be noted that although this article focuses on the booming biofuel industry, the model and solution techniques are suitable for a number of application contexts that simultaneously involve network traffic equilibrium, infrastructure expansion, and facility location choices (which determine the origin/destination of multi‐commodity flow).