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International Journal of Systems Science

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Optimal shrinking of the distribution chain: the facilities delocation decision
Pradip K. Bhaumik a a International Management Institute, New Delhi-110 016, India Online publication date: 17 February 2010

To cite this Article Bhaumik, Pradip K.(2010) 'Optimal shrinking of the distribution chain: the facilities delocation

decision', International Journal of Systems Science, 41: 3, 271 — 280 To link to this Article: DOI: 10.1080/00207720903326860 URL: http://dx.doi.org/10.1080/00207720903326860

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it is easy to see that if product volumes fall then a reverse movement towards fewer distributors may have to be set in motion. ILP Downloaded By: [Bhaumik.g. in practice the actual distribution network is not always an optimum one due to historical legacy. quite often some measure of the distance between retailers and their respective distributors. it is not a reallocation of demand nodes among the retained distributors. The distributor becomes the single point of contact for each of the many retailers and the closer the distributor. Pradip K. The fixedcharge problem attempts to minimise the total cost including the fixed cost and the variable cost of transportation. In fact. However. e. fixed-charge problem. Globalisation has exposed firms to heightened business risks from enhanced competition. March 2010. the business environment of many companies has undergone unimaginable changes engendering new problems requiring new methodologies and new solutions. Although this movement towards a greater number of distributors holds true in most cases. the location decision also affects the demand for the service and its market share unlike manufacturing facilities for whom the cost is largely affected. 271–280 Optimal shrinking of the distribution chain: the facilities delocation decision Pradip K. We first describe the delocation problem and discuss its characteristics. not much attention has been paid to the closure of facilities. The distributor may *Email: pkbhaumik@imi. mean or maximum. Unlike the location problem. 3. We formulate the delocation problem as an integer linear programming problem and demonstrate its formulation and solution on a small problem. maximising the service level/providing equitable services to customers. In fact. Consequently. delocation. An additional distributor may increase the fixed cost of operating the distributorship but decrease the cost of transportation and improve the service level. This could be due to a host of factors . Introduction In many sectors of the economy. Qutab Institutional Area. Facility location is concerned with the placement of one or more facilities in a way that optimises certain objectives such as minimising costs. the faster the response time and consequently the higher the service level of the distribution network. India (Received 10 July 2008. Keywords: facilities location. Often firms need to downsize or shrink their distribution chain for extraneous reasons anticipated to continue over the medium or the long term. Bhaumik* International Management Institute. more distributors appear in the optimum solution and the minimum cost solution also has a higher service level. As the flow of products through the distribution network increases. minimising the time taken to deliver emergency services or a combination of these. final version received 27 May 2009) Closure of facilities is quite common among both business firms and public sector institutions like hospitals and schools. distribution chain. An important condition stipulates that all demand nodes must continue to get their supplies from their respective current distributors except when the current source itself is delocated. for many service facilities like bank branches and retail stores.com provide many services including warehousing. billing and collection. maximising market share captured. is used as a measure of the service level. favourable location of facilities is critical to the business success of the firm itself. In this article.informaworld. The location decision for a new facility is very important for most organisations – manufacturing and service – in the private as well as the public sectors. orderfilling. 41. B-10. we have called this the facilities delocation problem.] At: 10:49 18 February 2010 1. No.edu ISSN 0020–7721 print/ISSN 1464–5319 online ß 2010 Taylor & Francis DOI: 10. information-processing. However. we discuss the solution and its implications for the distribution network. The number and location of distributors is of paramount importance in the design of a distribution network. and only such uprooted demand nodes will be supplied by a different but one of the retained suppliers. Finally. New Delhi – 110 016. the existing facilities and the corresponding network impose additional constraints on the closure or elimination of facilities and to highlight the difference between the two.International Journal of Systems Science Vol. Although the facilities location problem has been studied extensively in the literature.1080/00207720903326860 http://www. strategic and other practical considerations. we study a firm with an existing distribution network with known retailer and distributor locations that needs to downsize or shrink its distribution chain due to other business reasons.

Sforza. Meng. In economics and in economic geography. Puerto. Finally. the distance between any two points can be expressed as a function of the coordinates of the two points. Given an existing distribution network with known retailer and distributor locations. Meyerson. Coca-Cola India faced a similar situation a few years ago when the Delhi-based Centre for Science and Environment. We next present a small application and discuss the results in Section 4. and Velten 2009. Downloaded By: [Bhaumik. economics. not much attention has been paid to this problem in the literature and in the absence of any formal approach to guide them. Klincewicz. Diamond and Wright (1987) and Church and Murray (1993) extended these models with the concepts of balancing utilisation. conclusions are drawn in Section 5. while in a location decision we decide where to commence operations from a new facility. Ricca and Scozzari 2009). Nickel. Munagala. Midelfart-Knarvik and Overman 2002. In network location models. Discrete location models allow for the use of arbitrary distances or costs between nodes and as such. and Saldanha-da-Gama (2009). the number of distributors needed may have to be reduced. Bhaumik its earliest roots to present maturity. For example. Fleischmann. and Harper (2009) charts the progress of locational analysis from . Nickel.e. A recent volume edited by Drezner and Hamacher (2001) provides current development in this area. Forslid. After the short introduction. It should be understood that while in the growth phase the company has to decide where to locate the distributors (the location problem). on a network or on discrete points (Liao and Guo 2008. surprisingly. it becomes very important to decide which distributors to eliminate as the decision affects both the cost and the service level of the modified distribution chain. we focus on a firm that wishes to downsize its distribution network. Modelling the school system consolidation under declining enrolments. Bruno and Anderson (1982) developed an early model providing for the closure of some schools. it is surprising to note the absence of attention paid to the delocation problem in the literature. and Petrovic 2009. and Klamroth 2009.K. The delocation problem Many variations of the location problem have been studied in the literature. Luss. Bischoff.g. demand occurs and new facilities can be located only on the nodes or links of the network. solution procedures and applications is presented by Brandeau and Chiu (1989). In both of these. Different authors have formulated and suggested solution procedures for the problem of locating facility(ies) on a plane. They also refer to some earlier review articles published in the literature. An extensive literature review of facility location models in the context of supply chain management is given in Melo. the decision maker is forced to use methods that are mostly ad hoc and intuitive in nature. we have called this the delocation problem. Huang. and Cheu 2009. Pradip K. whereas some others would be relocated due to the changes in population density and network changes. and Serra (2007). in the downsizing phase it has to decide which distributors to eliminate or delocate and to highlight the difference.] At: 10:49 18 February 2010 2. and Robert-Nicoud 2003). we use the term as an antonym of location. Two books – one by Daskin (1995) and the other by Drezner (1995) also provide an overview of different location problems and a detailed bibliography on the subject. management and mathematics. Puerto. Baldwin. and Yu (1988) developed a largescale multilocation capacity planning model providing related to competitive. i. environmental or lifestyle changes. Marin. Laporte.272 P. Nadirler and Karasakal 2008. a green think tank. Although the location problem has been studied in detail even from different disciplinary areas of geography. An excellent review of location problems – their formulation. As shown by ReVelle. Lifestyle changes among consumers in many countries brought about by the current global recession may require similar response from many firms. closing a facility in its existing location so as to start operations from a new location (e. the structure of the underlying network is lost. tested its soft drinks and reported that all contained unsafe levels of pesticide in them. As the flow of products in the distribution network reduces. In planar location problems. Ottavino. However. Batanovic. Although closure of facilities is quite common. In this article. and Sterle 2009. a delocation decision involves deciding which of the existing facilities should cease operations. the firm may respond by shrinking its distribution network along with other responses. technological. The delocation problem is then described and formulated as a mathematical programming problem in Section 3. Boccia. while Smith. Martin. and ´ Plotkin 2008. operations research. closure of facilities is quite common among business firms as well as health and educational institutions in the public sector. and as the demand for its products or services reduce. ´ ´ Petrovic. a brief review of delocation problems discussed in the literature is presented in Section 2. Murray. the term delocation is often used to mean the first half of relocation. Murray and Wu (2003) modelled urban public transport networks where some stops would be eliminated. demand occurs and new facilities can be located anywhere on a plane.

2007). . two-echelon plant/warehousing facility. they model a market served by the firm as well as by the competition. Batta. m. they minimise the number of people made worse-off when some of the facilities are closed to reduce costs. A budget-constrained location problem was formulated by Wang. for example in the public sector providing healthcare or education services. . . xi 2 f0. The only paper that focuses on the facility closure was published as late as 2007 and models firms both with and without competition (ReVelle et al. . distributors or supply nodes. the firm wants to reduce the number of servers to r (r 5 m) by delocating or eliminating [(m À r) ¼ p] distributors. In the changed scenario as the demand for its products has reduced (although not uniformly across all demand nodes). if not i ¼ 1. . Customers get their respective demand met by the retailers. . 2. j ¼ 1. It can then be formulated as an integer linear programming (ILP) after defining the parameters and the decision variables as shown below. In the second model for a firm without competition. However. 1g yij 2 f0. Some of the nodes in the network also represent the current location of servers or distributors that service the demand nodes or retailers. Melachrinoudis and Min (2000) formulated a multiple objective model involving the dynamic relocation and phase-out of a hybrid.] At: 10:49 18 February 2010 3. 1g ð4Þ . . i ¼ 1. yij ¼ > : 0. Almost all of these papers consider relocation problems where some existing facilities would be closed while some new facilities could be opened at other locations to accommodate demand changes and other factors. and Rump (2003) that simultaneously considered opening some new branches and closing some existing branches in the branch network of a commercial bank. . j ¼ 1. local market or a retailer location. Pradip K. . . . A simple fixed-charge formulation of the facilities closure problem 273 The problem appears to have all the characteristics of a simple fixed-charge problem and amenable to such a formulation. We further assume that the cost effect can be measured through a fixed cost of operating the distributorships and a variable cost of transportation that varies with the product flow to each retailer.International Journal of Systems Science for plant closures in some periods in a multiperiod setting. Parameters: i ¼ index of servers. if demand node j is served from supply < node i in new set up . The network under consideration has n demand nodes currently served by m servers. 2. . m ð3Þ n X j¼1 xi ¼ r. They assume that demand from each demand node will be fully supplied from the nearest supplier – either belonging to the firm or to its competitor and the formulation minimises the demand lost to competition. 3. . if not i ¼ 1. m 8 > 1. Problem formulation We consider the general case of a firm serving a spatial market that is represented by discrete points in a connected network. if the ith existing supply node is retained xi ¼ . Each node in the network represents a demand area. Minimise z ¼ subject to: m X i¼1 n X j¼1 fi xi þ cij yij ð1Þ yij ¼ 1. We assume that this reduction will not affect the demand at any of the n demand nodes. . 2. . .1. . . 2. 0. . the closure of some distributors is expected to reduce both the cost and the service level. . n ð2Þ yij Mi xi . In a similar multiperiod framework. in the existing distribution network m ¼ total number of existing supply nodes or distributors r ¼ number of supply nodes to be retained (r 5 m) j ¼ index of demand nodes or retailers in both the existing and the new set up n ¼ total number of demand nodes or retailers fi ¼ cost of operating the ith supply node per period Mi ¼ the maximum number of demand nodes that can be served from the ith supply node cij ¼ cost of supplying the jth demand node from the ith supply node per period Decision variables:  1. n m X i¼1 m n XX i¼1 j¼1 Downloaded By: [Bhaumik. For the firm facing competition. 2. Badhury.

The formulation of the delocation problem becomes more complex if these restrictions are taken into account and is presented next.. Bhaumik demand nodes ( j ¼ 1. .. À i:e: if the ith existing supply node > > > : is retained in the new set up i ¼ 1. the firm may find that for many supply nodes Mi is higher than the number of demand nodes actually supplied from the ith supply node. 2. but for the fact that the candidate server nodes that can be retained are from among the existing servers – that is. Pradip K... . The pure delocation problem can thus be formulated as shown below. 2. the service level would deteriorate but that is expected to be compensated by a reduction in cost. n ð6Þ 3. As described earlier. .274 P. i ¼ 1. This is because of the legacy of the existing distributors who may or may not be retained. if not. . . . 2. .. if demand node j is served from a different > > > > ðretainedÞ supply node i in new set up because > > > > > > the current supply node is eliminated > < . . . Downloaded By: [Bhaumik. .. . The firm is not considering starting afresh and finding an optimum r distributor location solution due to the heavy cost of disruption of services and loss of trust and faith among current distributors. m) and n X j¼1 yij Ri ð1 À xi Þ. j ¼ 1. Formulation of the pure delocation problem The pure delocation problem begins with a given network with known supply nodes (i ¼ 1.m 8 > 1. . The pure delocation problem cannot be viewed as a simple fixed charge location problem to locate r (r 5 m) distributors. Very high or infinite cost can be assigned to those routes which are infeasible or undesirable. Mi is the maximum number of demand nodes that can be served from the ith current supplier with existing supply infrastructure that costs fi per period. 2. The firm wishes to close p of these existing m supply nodes. .2. while constraint set (3) mandates that only retained servers can supply to any demand node and the total number of demand nodes supplied from a retained server i is within its capacity Mi. In other words. m ð7Þ . each demand node must continue to get its supplies from its current supplier except when the current supplier is eliminated.n m n XX i¼1 j¼1 The problem is formulated to minimise the total cost per period comprising of a fixed cost of operating the retained servers and another cost of supplying from each retained server to each of the n demand nodes. Constraint set (2) ensures that each demand node is supplied from a unique server. 2. Also. . all the demand nodes must continue to get their supplies from their respective existing supplier. n) such that each demand node ( j) is supplied from a unique supply node.] At: 10:49 18 February 2010 " cij yij À Minimise z ¼ m X i¼1 fi xi þ m X X i¼1 j2Di ! # cij xi ð5Þ subject to: m X i¼1 yij ¼ xsj . The motivation for the closure of some distributors being the reduction of demand for its products.m. Constraint (4) has been added so that the exact number of distributors can be ensured in the solution. 2. . if not. xi ¼ > 0.. . if the ith existing supply node is eliminated > > > < in the new set up . . . It is not difficult to see that the solution to the simple fixed charge formulation above may reallocate some of the demand nodes to new supply nodes to reduce costs. j ¼ 1. Additional parameters: p ¼ number of supply nodes to be eliminated sj ¼ index of the supply node for the jth demand node Di ¼ Set of indices of all the demand nodes for the ith supply node Ri ¼ the maximum number of additional demand nodes that can be served from the ith supply node Decision variables: 8 > 1. The existing network may have been optimal at some previous period but may not be optimal at present when the product flow in the network has reduced in general. but the demand at each retailer may not have reduced by the same percentage. This may not be acceptable due to operational and practical considerations. yij ¼ 0. À i:e: if demand node j is continued > > > > to be served from supply node i both in > > > > > the current and the new set up or if supply > > > : node i is eliminated i ¼ 1.K.. only r out of the existing m server nodes are to be retained. and exceptions will be made only if the existing supplier is eliminated. It is obvious that the above simple fixed charge formulation is independent of the existing distribution network. . 2. With the closure of some servers. .

xsj ¼ 0) and if the source node is eliminated. xi 2 f0. Table 1 also lists the values for sj and Di for each demand node and each supply node. yij ¼ 0 if the source node (sj) is retained (i. 1g ð8Þ The objective is to minimise the cost increase consequent to the closure of some facilities. all the yij’s ( j ¼ 1.e.e. . Application and results We present a small application with 19 demand nodes ( j ¼ 1.International Journal of Systems Science 275 j=2 j=1 j=5 j=4 j=3 j=6 j = 10 i=1 j=8 j = 13 j = 11 j = 12 j = 16 j = 14 i=4 j = 15 j=7 i=3 j=9 i=5 i=2 j = 19 j = 18 Downloaded By: [Bhaumik. This is the increase due to the cost of the new links created net of the savings due to closure of some existing servers and links therefrom which would not be used in the new set up. . with xi ¼ 1). With the given data. then this uprooted demand node has to be linked to one new source node. Pradip K. . The cost figures per period of operating the ith supply node ( fi) as well as of using the link from supply node i to demand node j for each value of i and j. Similarly. . 2. . respectively. salaries. 2. In fact. are shown. 5) in the existing set up. utilities. The same constraints also ensure that the number of additional demand nodes connected to the ith retained supply node (after the closure of some other supply nodes) does not exceed its unutilised capacity Ri. Table 1 provides the parameter values for the model formulation. it can be computed if the demand per period from the jth node is known and also known is the unit cost of transportation on the route from the ith distributor to the jth demand node. storage costs and other similar expenses incurred per period. The existing distribution network is shown in Figure 1. (cij).] At: 10:49 18 February 2010 j = 17 Figure 1. 2. . Constraint (8) specifies the number of supply nodes that need to be eliminated. 4. Similarly. Similarly. 4. . the constraint set (7) requires that corresponding to every eliminated supply node (i. Constraint set (6) defines that for every demand node j. the delocation problem can be formulated as shown below: Minimise z ¼ 5 19 XX i¼1 j¼1 cij yij À ½256x1 þ 124x2 þ 136x3 þ 152x4 þ 111x5 Š . 19) supplied from 5 servers or distributors (i ¼ 1. 3. cij represents the cost per period of supplying demand node j from the ith distributor and incorporates the transportation and distribution cost. n) should be equal to zero as new links cannot be established from eliminated supply nodes. m X i¼1 xi ¼ p. . 1g yij 2 f0. Existing distribution network. The cost of having a distributor at the ith supply node ( fi) is actually a fixed cost and incorporates the establishment costs.

] At: 10:49 18 February 2010 276 Table 1.13.3.17. demand nodes 10 cij 41 45 50 63 58 1 30 42 44 49 47 2 44 36 38 39 34 3 49 48 30 27 25 4 57 45 39 18 24 5 69 63 47 29 36 4 40 29 35 41 27 5 58 28 64 64 54 2 56 22 62 57 39 2 74 48 51 48 32 5 11 12 13 14 15 16 17 18 19 Supply node Optg cost Supplying to demand nodes P.18 2.6. j Max total demand nodes 1 2 3 4 5 6 7 8 9 Mi 11 7 8 9 6 sj 1 3 1 1 4 1 5 4 5 5 3 37 62 39 57 71 40 55 35 51 63 19 57 46 68 75 32 37 27 48 54 49 59 22 29 45 35 47 52 59 63 21 49 27 32 46 3 Ri 43 53 22 32 35 1 58 64 44 26 45 4 Max. addl.19 .15 14. Parameter values for the existing distribution network. Bhaumik i fi Di 1 2 3 4 5 49 32 36 41 28 1.Downloaded By: [Bhaumik.K.10 11. Pradip K.8.12 5.4.9.7.16.

] At: 10:49 18 February 2010 þ y4.17 þ y3.3 þ y4.5 þ y3. If one server is to be closed.19 þ 5x4 5 y5.7.13 þ y2.8 þ y4. y1. y4.13 þ y4.16 þ y3.1 þ y3. y4. it does not supply to its earlier demand nodes 7 and 12. x5 New links 277 Nil y1.9 þ y1.3 ¼ x1 Downloaded By: [Bhaumik.5 ¼ x4 y1. .16.19 No feasible solution subject to: y1.13 þ y3.18 þ y5.5 þ y4. x5 2 f0.2 þ y5.9 þ y3.14 þ y2. respectively.12 þ y5. y5. y1. 12}].12 þ y5.6 þ y4.16 ¼ x5 y1.16 þ y2.7 þ y5.4 þ y4.5 þ y3.17 þ y3.8 þ y5.11 þ y5.9 þ y3.6 þ y5.18 þ y3. x2 .18 þ y2.2 þ y5.2. y2.19 þ 3x5 3 x1 þ x2 þ x3 þ x4 þ x5 ¼ p x1 .10 þ y4.19 þ y2.10 þ y1.6 þ y1.2 . 7.2.11 þ y4.16 þ y5.2 þ y3. x5 x2.5 þ y5.14 þ y3.19 þ 4x2 4 y3. The difference between the delocation problem formulation and the simple fixed charge formulation can be seen more clearly from the two diagrams shown in Figures 2 and 3.19.13 þ y5.8 þ y3. using a standard package for ILP.15 þ y3. We also notice that with a larger number of closure of servers.16 þ y1.7 þ y4.9 ¼ x4 y1.12 y1.8 þ y5.4 ¼ x1 y1. whereas it is being supplied from supply node 3 in the current set up.16 þ y2.17 þ y4.7 þ y4.7 þ y3.15 þ y4. x3.7.12. Solution of the delocation problem.19 þ y3.3 þ y2.3 þ y1.16 þ y4.2 þ y4.9 þ y5.17 þ y1.16 þ y5.14 5 .8 þ y4. namely [D3 ¼ {2.12 ¼ x3 y1. y1.19 þ y4.13 þ y4. y4.12 þ y4. If the simple fixed charge formulation is used then the solutions for different number of supply nodes retained is as shown in Table 3.18 þ y5.14 þ y3. x4 .9 þ y2.2 þ y2.2 and y1.12 þ y3.7 þ y5. y1.16 þ y4.11 þ y4.2.5 þ y4.13 ¼ x4 y1.4 þ y2.5 þ y2. of servers to be eliminated (p) 0 1 2 3 4 Cost increase 0 À41 À55 À20 Cost 779 738 724 759 Eliminated supply nodes Nil x3 x3. . y2.14.19 þ 5x3 y4.13 þ y2.12 þ y4.17 þ y4.12 þ y2.2 þ y4. y1. each of the uprooted demand nodes.7 þ y3.3 þ y3.3 þ y4.10 þ y3. y1.17.15 þ y2.11.1 ¼ x1 y1.4 þ y4. the solution obtained is as given in Table 2.18 ¼ x2 y1.4 þ y1.4 þ y3.11 þ y2.7 þ y2. 1g y1.14 þ y5. y2.13 þ y5. y4.11 þ y5. In the optimum solution.18 þ y1. the cost first decreases and then increases.18 þ y4.11 ¼ x2 y1.12 þ y2. Here again we notice that the cost first decreases and then after a point starts rising.19 þ 5x1 5 y2.International Journal of Systems Science Table 2.1 .18 þ y3.18 þ y2. y1.14 þ y1.3 þ y5. both cost and service level may worsen.4 þ y3.6 þ y3.19 2 f0.11 þ y3.12). .15 þ y5.1 þ y4. y5.9 þ y4.10 þ y2.6 þ y2.9 þ y5.14 ¼ x5 y1. While supply node 3 is retained in the new set up.4 þ y5. In the new set up.6 þ y3.6 ¼ x1 y1.13 þ y1.15 ¼ x4 y1.1 þ y2.10 þ y3. x3 .17 ¼ x2 y1.18.12.3 þ y3. If the motivation for closure of servers is cost reduction – as the service level is likely to worsen with fewer servers – then it works up to a limit (p ¼ 2) and after the limit.17 þ y5.1 þ y2.5 þ y1.10 ¼ x1 y1.14 þ y2.7 þ y2.2 ¼ x3 y1.2 þ y1.6 þ y4. For our problem this happens when three supply nodes are retained.8 þ y3.7 þ y1.1 þ y5. .6 þ y2.10 þ y2.17 þ y2.10 þ y4.4 þ y5.8 ¼ x1 y1.1 þ y4.14 þ y4.19 þ y5.17 þ y2.7) while demand node 12 is being supplied from supply node 5 (using new link y5.2 þ y3.12 þ y3.14 þ y5.1 þ y1. The simple fixed charge solution of Figure 3 requires demand node 7 to be supplied from supply node 1.10 þ y5. demand nodes 2 and 7 are being supplied from supply node 1 (using new links y1.7 ¼ x3 y1.5 þ y5.16.15 þ y5. will have to be supplied from some operating server.3 þ y2. Optimum solution No.15 þ y3.13 þ y3.6 þ y5.10 þ y5.5 þ y2.9 þ y2.4 þ y2.8 þ y1.14 y1.8 þ y2. Pradip K.9 þ y4.17 þ y5.15 þ y2.18 þ y4.1 þ y5. the cost per period actually decreases and the solution suggests that x3 should be eliminated.3 þ y5. y1.16 þ y3.2 þ y2.12 þ y1. This may not be acceptable in the long-term strategic y1. 1g When solved for different values of p.7.19 ¼ x5 y1.11 þ y2.8 þ y2.1 þ y3.15 þ y1.15 þ y4.11 þ y3.1 1 þ y1.

11. P. 8. 3. Conclusions Closure of facilities and shrinkage of the distribution chain is not very uncommon for business units. 2. 8. The delocation problem formulation and its solution is relevant for distribution chains going ahead with the closure of some of its distributors without annoying any of the retained distributors. 3. 17.K. Figure 2. 15 12. 12. 7. 10. even if the distribution chain is designed to be optimal at some stage. 15. 13. 2. it is not a reallocation of demand nodes among the retained distributors. 9. 19 j=4 j=3 j=6 j = 10 i=1 j=8 j=7 j=5 i=3 j=9 j = 13 j = 11 j = 12 j = 16 j = 14 j = 15 4 706 i=5 i=2 j = 19 j = 18 j = 17 3 701 1. 9 12. 11 17. With reduced volume of materials flowing through the distribution chain. 4. 2. 14. 3. 4. The delocation problem solution. 3 and 5. However. 13. 17. 8 9. 8. even if the existing distribution network is optimal with the existing number of supply nodes. the solutions for the two problems would be different with fewer supply nodes retained. 13. 6. The delocation problem would not allow the creation of a new distributor (node 4) while reducing the total number of distributors. interest of the firm although it may be cheaper than the solution given by the pure delocation formulation. 19 5. A naı¨ ve argument can be advanced that the difference in the optimal solutions of the pure delocation problem and the simple fixed charge problem is because the existing distribution chain is not optimal with five supplier nodes. 4. 19 No feasible solution 2 Downloaded By: [Bhaumik. Solution of the delocation problem with 1 distributor delocated (cost 738). a firm may wish to reduce the number of distributors with a minimum consequential cost increase. If only three supply nodes are to be retained. 9. In practice. 6. it usually deviates from optimality due to uneven 5. Bhaumik j=2 Supply nodes Supply retained (r) Cost node (i) 5 716 1 2 3 4 5 1 2 3 5 1 2 4 1 4 j=1 Distributing to demand nodes ( j) 1. 16. This can be clearly seen from Table 3. 5. 13. 3. 15 1. j=2 j=1 j=4 j=3 j=6 j = 10 i=1 j=8 j = 13 j = 11 j = 12 j = 16 j = 14 j=7 i=4 j = 15 j=9 j=5 i=5 i=2 j = 19 j = 18 j = 17 changes in demand at the different demand nodes. 2 and 4 should be operating. 10. However. 19 1. 14. 14. 16. 7. 5. 7. 16. does not violate any of the existing linkages as shown in Figure 2. 18. Table 3 suggests that supply nodes numbered 1. Pradip K. Solution of the simple fixed charge problem with 4 distributors retained (cost 706). 15.278 Table 3. on the other hand. Solution of the simple fixed charge problem. 14. 6. 6. But this problem has not been studied much in the literature.] At: 10:49 18 February 2010 747 1 Figure 3. 18 2. 7. 4. 18 5. An important condition of the pure delocation problem stipulates that all demand nodes must continue to get their supplies from their respective current sources except when the current source itself is delocated and only such uprooted demand . 11 12. If the existing distribution network had four supply nodes – these would be supply nodes numbered 1. 18 2. 16. 10. 10. 11 17.

if there are limits on the additional quantity that can be handled by a distributor. it becomes very important to decide which distributors to eliminate as the decision affects both the cost and the service level of the modified distribution chain. but it can be easily modified to specify a maximum operating cost per period after the shrinkage or even the minimum reduction in operating cost per period. S. It should be understood that while in the growth phase the company has to decide where to locate the distributors (the location problem). ‘An Overview of Representative Problems in Location Research’. Baldwin. 2009) as well as the minimax regret approach (Puerto. R.. and Krass. and Klamroth. such limits could be easily handled by modifying the constraint set (7) to accommodate additional quantities rather than the number of additional supply nodes Ri.. and Robert-Nicoud. Princeton and Oxford: Princeton University Press. In this context.. 106–112. ‘Analytical Methods For Planning Educational Facilities in an Era of Declining . 120–129.International Journal of Systems Science nodes will be supplied by a different but one of the retained suppliers. Pradip K. ‘Incorporating Uncertainty in Optimal Decision Making: Integrating Mixed Integer Programming and Simulation to Solve Combinatorial Problems’. 645–674. Bischoff. Martin. Computers & Operations Research. Specialised branch and cut procedure (Marin et al. The pure delocation problem formulated honours the existing distribution network which may not be optimal due to historical legacy. although we have presented the delocation problem in the context of the distribution chain of a business firm. Information Sciences. the actual problem could turn out to be much bigger with hundreds or even thousands of retailers. 56.. We have assumed that the elimination of some distributors will not affect the demand at any of the demand nodes or retailers although it is expected to reduce both the cost and the level of service to the retailers. European Journal of Operational Research. Management Science. (2009).] At: 10:49 18 February 2010 needed for very large problems. ‘Flow Intercepting Facility Location: Problems. J.. We have not explored the difficulties encountered in solving the delocation problem formulated. As the flow of products in the distribution network reduces. ‘Competitive Facility Location and Design Problem’.S. it can easily be modified to handle unit transportation cost and demand per period from each demand node. Models and Heuristics’. F. 8. ´ ´ ´ Batanovic.. M. C. although in some applications mixed integer programming formulations ´ have been used (Galasso. Given an existing distribution network with known retailer and distributor locations. and Grabot 2008. J. Berman. and Anderson. strategic and other practical considerations. V. 35–79. Journal of Mathematical Modelling and Algorithms. the constraint expansion approach. D. R. we have called this the delocation problem.. Petrovic. We have specified the exact number of suppliers to be eliminated in the formulation. the same formulation can be easily extended to the case of public sector services such as schools. Delocation of schools is becoming a serious problem in many countries facing low birth rates and demographic shifts. 179. (1989).E. which has been shown to be effective in solving location problems (ReVelle 1993).. Also. and Krass (2007) have studied the case of new facility location where the customer demand is elastic.M. A. 1376–92. Sforza. Merce. T. 36. Computers and Industrial Engineering. R. G. M. (2009).. Brandeau. Rodriguez-Chia. O. ‘The Multi-facility Location-allocation Problem with Polyhedral Barriers’. and Tamir 2009) have also been used to solve such problems. and Petrovic..L. 182. Wu 2008). and Sterle. (2007). K. and Chiu. While the small problem demonstrated above could be solved exactly using a branchand-bound procedure.. Economic Geography and Public Policy. Acar. Finally. the number of distributors needed may have to be reduced.. 35. and Day (2009) developed a novel approach that allows iterative interaction with a simulation model. Forslid. Similarly.. Fleischmann. P. Berman. In this article. Boccia. References Aboolian. Aboolian. Our formulation will ensure that children from retained schools are not affected and only children presently going to a school being delocated will be assigned to one of the retained schools.. As the customers get their demand serviced by the retailers and there is no delocation of retailers. in the downsizing phase it has to decide which distributors to eliminate or delocate and to highlight the difference. although our model uses the cost per period of using a link. The formulation of the delocation problem and its justification remains valid irrespective of the size of the problem. Bruno. S.. (2009). efficient heuristics may be 279 Downloaded By: [Bhaumik. D. we focus on a firm that wishes to downsize its distribution network. Facility location problems are generally formulated as large integer programming problems. ‘Fuzzy Logic Based Algorithms for Maximum Covering Location Problems’..N. and Day. can be useful for delocation problems as well. M. P. (2003). (2009). Acar. Kadipasaoglu. it is reasonable to assume that the demand at any of the demand node or retailer will not be affected. Y. Kadipasaoglu. Ottavino. 40–62. expanding with the utility of the service offered by the facilities increases. (1982). R. Depending upon the size of the existing distribution network.

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