REGIONAL NETWORK CONFIGURATION

Fabiola Regis Hernández

June 2019
REGIONAL NETWORK CONFIGURATION
REGIONAL NETWORK CONFIGURATION
One echelon Two echelon Three or more echelon
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Capacitated Plant Location Model
! " Optimization model
#$% Sets:
!: *,)-./{1, … , -}
": &'()-& *5!-./ 1, … , (
Parameters:
#$% : #5/. 56 7/!-8 .ℎ' ):# (!, ")
#)*$ : #)*)#!.= 56 .ℎ' *,)-. !
&'(% : &'()-& 56 #7/.5(': "
Decision variables:
>$% : ?7)-.!.= 56 *:5&7#. .5 @' /'-. 6:5( *,)-. ! .5 #7/.5(': "
Objective function:
To minimize the distribution costs
Constraints:
#)*$ &'(% (1) The units sent from plant i cannot exceed capacity of plant i
(2) The units received by the customer j must be equal to its demand.
REGIONAL NETWORK CONFIGURATION
Capacitated Plant Location Model
Optimization model

Sets: Objective function (O.F):

": 89:#;<{1, … , #}
!"# $ $ *%( +%(
0: -.!:#- 8A"#;< 1, … , !
%∈' (∈)
Parameters:
Subject to (s.t.):
*%( : *A<; AB C<"#D ;ℎ. :F* (", 0)
*:8% : *:8:*";I AB ;ℎ. 89:#; " $ +%( = -.!( ∀0 ∈ 1 Eq. 1
-.!( : -.!:#- AB *C<;A!.F 0 %∈'

Decision variables:
$ +%( ≤ *:8% ∀" ∈ 4 Eq. 2
+%( : JC:#;";I AB 8FA-C*; ;A K. <.#; BFA!
(∈)
89:#; " ;A *C<;A!.F 0

+%( ∈ 23 ∀" ∈ 4, j ∈ 1 Eq. 3

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Example: Capacitated Plant Location Model

Demand City
Supply City Production and Transportation Cost per 1000 units Capacity
Aguascalientes Queretaro Chicago Veracruz Campeche
Mexico 1,675 400 685 1,160 2,800 18
Guadalajara 1,460 1,940 970 495 1,200 24
Monterrey 1,925 2,400 1,425 950 800 27
San Luis Potosi 380 1,355 543 665 2,321 22
Demand 10 8 14 7 11
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Example: Capacitated Plant Location Model

Total cost: $27,151

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Example: Capacitated Plant Location Model
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Capacitated Plant Optimization model

Location Model Sets:

!: #$%&'({1, … , &}
.: /01%&/ #2!&'( 1, … , 1
. 3: 4%50ℎ27(0( {1, … , $}
! 3 Parameters:
89: : 82(' 2; 7(!&< 'ℎ0 %58 (!, 3)
89: 8:? 8:? : 82(' 2; 7(!&< 'ℎ0 %58 (3, .)
8%#9 : 8%#%8!'@ 2; 'ℎ0 #$%&' !
/01? : /01%&/ 2; 87('2105 .
Decision variables:
A9: : B7%&'!'@ 2; #52/78' '2 C0 (0&' ;521 #$%&' ! '2 4%50ℎ27(0 3
@:? : B7%&'!'@ 2; #52/78' '2 C0 (0&' ;521 4%50ℎ27(0 3 '2 87('2105 .
Objective function:
To minimize the distribution costs
Constraints:
(1) The units sent from plant i cannot exceed capacity of plant i
(2) The units received by the customer j must be equal to its demand.
 REGIONAL NETWORK CONFIGURATION
Example: Capacitated Plant Location Model

Demand City
Supply City Production and Transportation Cost per 1000 units Capacity
Aguascalientes Queretaro Chicago Veracruz Campeche
Mexico 1,675 400 685 1,160 2,800 18
Guadalajara 1,460 1,940 970 495 1,200 24
Monterrey 1,925 2,400 1,425 950 800 27
San Luis Potosi 380 1,355 543 665 2,321 22
Demand 10 8 14 7 11
 REGIONAL NETWORK CONFIGURATION
Capacitated Plant Location Model
Consider now that Mexico, Guadalajara, Monterrey and San Luis Potosí are only
possible locations and if you decide to open them you will incur in Fixed costs
additional to the variable cost related to the units sent from the opened plant to the
customers.

Supply City Fixed cost

Mexico $ 7,650.00
Guadalajara $ 3,500.00
Monterrey $ 5,000.00
San Luis Potosi $ 4,100.00
REGIONAL NETWORK CONFIGURATION
Capacitated Plant Location Model
Optimization model Objective function (O.F):
! "
Sets:
#$% (!- D D #$% ?$% + D >$ =$
!: *,)-./{1, … , -}
": &'()-& *5!-./ 1, … , ( $∈F %∈G $∈F

Parameters: Subject to (s.t.):

#$% : #5/. 56 7/!-8 .ℎ' ):# (!, ") D ?$% = &'(% ∀" ∈ N Eq. 1
#)*$ : #)*)#!.= 56 .ℎ' *,)-. ! $∈F
&'(% : &'()-& 56 #7/.5(': "
>$ : 6!?'& #5/. !6 ) *,)-. !/ 5*'-'& !- ,5#).!5- ! D ?$% ≤ #)*$ ∀! ∈ Q Eq. 2
Decision variables: %∈G
?$% : @7)-.!.= 56 *:5&7#. .5 A' /'-. 6:5(
*,)-. ! .5 #7/.5(': " T=$ − ?$% ≥ 0 ∀! ∈ Q Eq. 3

1 !6 ) 6)#!,!.= !/ 5*'-'& !- !
#)*$ =$ : I ?$% ∈ OP ∀! ∈ Q, j ∈ N Eq. 4
0 5.ℎ':K!/'
BC &'(% Eq. 5
=$ ∈ 0,1 ∀! ∈ Q
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Example: Capacitated Plant Location Model

Total cost: $46,085

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Example: Capacitated Plant Location Model
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Exercise 1: Capacitated Plant Location Model

Using LP find the optimal way

to perform the distribution
goods to satisfy the customer
demand.
Warehouse(s) to be opened.
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Capacitated Plant Location Model

• Where to install the plants?

• The capacity of the plants?
• How to distribute goods
among the different regions.
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Exercise II: Capacitated Plant Location Model
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Capacitated Plant Location Model

Constraints

• Capacity
• Demand
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Capacitated Plant Location Model

• Where to install the plants?

• The capacity of the plants?
• How to distribute goods
among the different regions.
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Capacitated Plant Location Model

One more constraint…

• No more than one plant can

be opened in the same
location.
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Capacitated Plant Location Model

There is also a major constraint…

Customers in Europe are very picky,
and the European Union regulations
indicate that their demand can only be
satisfied by one region.