Service system design for managing interruption risks: A backup-service risk-mitigation strategy

Abstract This paper considers a system of immobile service facilities that provide service to a set of customers, which can be demand points, population zones, etc. The customers create congestion at facilities because of stochastic demands and service times. Each service facility is interrupted frequently, and the recovery process for each interruption starts after an assessment period. Both recovery and assessment processes last for uncertain periods. The backup-service strategy, together with appropriate adjustment of facility locations and service capacities, is used to mitigate interruption risks, that is, each customer is assigned to a backup facility to get service when the primary facility is interrupted. The goal is to determine open service facilities and their service capacities, and to assign customers to primary and backup facilities in order to maximize an aggregated performance measure, which is a balanced sum of the customers’ and the system owner's criteria. The problem is formulated as an integer non-linear optimization model and solved by a Lagrangian-relaxation algorithm. The numerical experiments illustrate the high efficiency of the algorithm. Several managerial implications are also provided.