Robust optimization approach to the design of hub-and-spoke networks

This paper considers the capacitated single and multiple allocation hub location problems with stochastic demands. The objective is to determine the number of hub facilities, their location and capacities, and allocation of demand to facilities so that the transfer of all the commodities in the network is ensured, while the total system-wide costs are minimized. A robust optimization approach is employed to model the problem and a standard optimization package is used to solve it. Computational results indicate the capability of the presented robust models to immunize the system against parameter perturbations with small cost increase, known as robustness cost.