Optimizing Zone-dependent Two-level Facility Location Problem

Abstract

This paper considers a problem of locating both distribution centers and retailers in a zone-dependent two-level distribution network where either a distribution center or a retailer should be located in each zone. Customer demands of each zone should be satisfied directly from either its own distribution center or its own retailer being supplied from a distribution center of another zone. The objective of the proposed problem is to minimize total cost being composed of distribution center/retailer setup costs and transportation costs. In the analysis, the problem is proved to be NP-hard, so that a branch-and-bound algorithm is derived for the problem. Numerical experiments show that the proposed branch-and-bound algorithm provides the optimal solution efficiently for some small problems.