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Facility Location Problems-A Case Study for ATM Site Selection

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 Facility Location Problems - A Case Study for ATM Site
Selection

Mujde Erol Genevois, Derya Celik Turkoglu, Michele Cedolin*

(Müjde Erol Genevois, Galatasaray University, Department of Industrial Engineering)
(Derya Celik, Galatasaray University, Institute of Science)
(Michele Cedolin, Galatasaray University, Institute of Science)
merol@gsu.edu.tr, celikderya84@gmail.com, mcedolin@gsu.edu.tr*,

Abstract
The facility location-allocation problem is an important topic that arises in many
practical settings. These applications arise in various areas such as transportation, distribution,
production, supply chain decisions, telecommunication and finance. As a result, the studies on
the facility location problems are steadily increasing in the literature. The automated teller
machine (ATM) site selection is a compelling decision for banks, and there are several studies
in the literature that work on it, with different parameters and approaches. The main objective
of the accurate ATM deployment is to minimize the costs without compromising customer
satisfaction. In this study, it is concentrated to the Uncapacitated Facility Location Problems
(UFLP) and Capacitated Facility Location Problems (CFLP) for the above mentioned
problem. The models are applied to a private bank ATMs located in a county of Istanbul. The
results show that the ATM capacity is an important factor.

Keywords: uncapacitated facility location problem, capacitated facility location problem, ATM site
selection, decision making

Main Conference Topic: Computer Science, Transport and Logistics

Introduction

Facility location problems deal with the question where to locate a single object or a
set of objects. Broadly speaking, there are basically two groups of facility location problems:
discrete location problems and continuous location problems. In many real world
applications, the facilities to be located can be warehouses, factories, depots, service centers
distribution centers, antennas or retailers.

Studies on the facility location problems date back to the seminal work conducted by
Weber (1909) who has defined Weber Problem which deals with the optimum location of a
single facility on the Euclidian space such that the sum of the distances from this facility to
the existing customers with fixed locations is minimized [1]. Cooper (1972) introduced Multi-
facility Weber Problem (MWP), which is consisted of the location of M Uncapacitated

*Corresponding author
facilities in the plane to satisfy the demand of N customers at minimum total transportation
cost [2]. Sherali et al. (1988) showed that Capacitated MWP is a NP-hard problem [3]. Foulds
and Wilson (1997) presented the first covering assignment problem [4]. The interested readers
may look at Hale et al. (2003) who provided a broad review of facility location research [5].

Automated teller machines (ATMs) emerged in 1960s and with the new technologies
and growing demand; the numbers of ATMs are continuously increasing in worldwide. Bátiz-
Lazo (2009), studied the emergence and evolution of ATM networks, presenting a broad
history review [6]. Optimum location selection affects directly the customer satisfaction
(accessibility), and vehicle routing costs. In the literature there are several articles that
examine ATM location problem by applying mathematical formulations and geographic
information systems.

Aldajani & Alfares (2009), formulated a mathematical model for determining

optimum number and location of ATMs. They implemented a novel heuristic solution based
on convolution and with predetermined service level, and applied the model to the different
problems such as mesh of roads, high priority centers and an actual map of a city, observing
the total percentage coverage [7]. Li et al. (2009), studied the site selection and layout of
ATMs, employing particle swarm optimization (PSO) to geographical information system
(GIS). They conducted the experiment in China, Tianjin, choosing randomly 50 ATMs,
located in different sites, viz. bank branches, commercial districts, schools, enterprises and
taking into account 12652 transactions of a ten day period [8]. Rahmati et al. (2014),
developed a bi-objective model for facility location-allocation (BOFLA) problem with
immobile servers and stochastic demand, which is related to ATMs. Since it is a NP-Hard
class problem they employed 2 algorithms; non-dominates sorted genetic algorithm (NSGA-
II) and non-dominated ranked genetic algorithm (NRGA), respectively [9]. Recently,
Genevois et al. (2015), focused on ATM location selection problem, and throughout a deep
literature survey, they determined the relevant criteria for deployment problem. They
clustered criteria and considering the interrelationship among them, employed analytic
network process to detect importance level of criteria and built a general framework for
further researches [10]. Bilginol et al. (2015), approached to the ATM location selection
problem, by canonical correlation analysis to determine the criteria affection the ATM site
selection decisions, and ordinary least square analysis to analyze results criteria, and find the
optimum ATM location and their predictive efficiencies. They choose a sample bank located
in Istanbul, and predicted the ATM transactions using linear regression based on residents,
social media, POI and competitor figures, using the geographical data [11].

However, as far as we know, none of the studies applied the capacitated and
uncapacitated facility location problem in the ATM site selection problem. In this study, we
will apply both models for a real case scenario and discuss the results. In the next sections an
introduction to the uncapacitated and capacitated facility location models will be provided.
Subsequently, an application will be presented. Finally, the conclusion and future extensions
are discussed.

UFLP

The Uncapacitated Facility Location Problem selects a number of potential sites for
locating supply facilities; those that minimize the costs- defined as the sum of the
transportation costs and fixed costs of opening facilities. The Uncapacitated model assumes
each facility has unlimited capacity, and as a result, if a facility supplies a demand node, it
will satisfy all the demand [12][13]. The main model of UFLP is as follows:

K L K
Min ( ckl  d l  xkl  Fk yk )
k 1 l 1 k 1

s.t
K

x
k 1
kl  1 l ,

xkl  y k k , l ,

xkl , y k  0,1
k  1,..., K index of facility locations,

l  1,..., L index of demand location,

c kl  cost of shipping one unit of demand from facility k to demand l,

d l  the # of units of demand at l,

Fk  fixed cost of opening / using facility k.


1 if facility k serves demand l,
 
1 if facility k " opened" (i.e. used),

xkl   
 k 
y 

0 o/w 
 
0 o/w. 


The objective function calculates the total cost (transportation and fixed opening costs)
of supplying the demand in the system. Total transportation costs are obtained by summing
over all facilities and all demands the product of the per unit transportation cost from facility k
to a demand l, the total number of units demanded dl, and the integer variable xkl (which is 1
only if that facility is chosen to supply that demand in the optimal solution). Total fixed costs
of opening facilities are obtained by summing over all facilities the product of the fixed costs
Fk and the integer variable yk (which is 1 if that facility is chosen to be opened in the optimal
solution). Because each opened facility provides all the necessary resources to satisfy
demands at locations that it serves, the second constraint assures that every demand is
satisfied, and the third constraints assures that only open facilities can supply demands (and
that the fixed cost for opening the facilities are properly assessed in the objective function).

CFLP

The Capacitated Facility Location Problem selects a number of potential sites for
locating supply facilities, those that minimizes the costs- defined as the sum of the
transportation costs and fixed costs of opening facilities. The Capacitated model operates
under given supply capabilities/constraints. The mathematical formulation of the CFLP is as
follows:

K L K
Min ( ckl  bkl  Fk yk )
k 1 l 1 k 1

s.t.
 K

x
k 1
kl  1 l ,

x kl  y k k , l ,
K

b
k 1
kl  d l l ,

bkl  min d l , C k y k k, l,

x kl , y k  0,1,

bkl  0,

C k  Capacity of facility k,

b kl  # of units shipped from facility k to demand location l.

In CFLP, the objective function is similar to UFLP except that the transportation costs
is calculated as the product of the per unit transportation costs and the amount shipped from
facility k to demand l. Constraints assure that the amount shipped from facility k to demand l
(bkl) is either less than the demand requirement at l (dl) or the supply at k (Ck)—whichever is
smaller; if facility k is not opened, then bkl is forced to be zero.

Implementation

In this section, application about given models are presented. As we mentioned

already, the ATM deployment is an important strategic problem for banks. In order to solve
the models, we selected Besiktas, a municipality of Istanbul which population is 186,570 and
the area is 21.33 km2. The county and its districts (23) are illustrated in Figure 1 and Figure 2,
respectively.

Figure 1: Location of Besiktas

Figure 2: Districts of Besiktas

 At Besiktas, there are a total of 456 ATMs, 22 of which are our banks. However, these
ATMs are not dispersed uniformly to these districts, for instance, the bank has no ATMs in 3
districts, while has 3 ATMs in district 18, 19 and 22. The distance between ATM locations
and district centers are calculated with great circle distance metric, employing the latitude and
longitude data for each ATM. The used formula is as follows where R is the Earth’s radius
(6371km):

𝐷𝑖𝑠𝑡𝑎𝑛𝑐𝑒 = cos−1(cos(𝑅𝑎𝑑𝑖𝑎𝑛𝑠(90−𝐿𝑎𝑡1)) × cos(𝑅𝑎𝑑𝑖𝑎𝑛𝑠(90−𝐿𝑎𝑡2)) +

sin(𝑅𝑎𝑑𝑖𝑎𝑛𝑠(90−𝐿𝑎𝑡1) × sin(𝑅𝑎𝑑𝑖𝑎𝑛𝑠(90−𝐿𝑎𝑡2)) × cos(𝑅𝑎𝑑𝑖𝑎𝑛𝑠(𝐿𝑜𝑛𝑔1−𝐿𝑜𝑛𝑔2)))×𝑅

Demand nodes are considered as the centers of districts, while demand amounts are
considered correlated with the total ATM existing in the district. Capacity of each ATM is
assumed to be the same and 20000, considering the cash out times, down times, and
replenishment process time. All the ATMs are identical with a setup cost of 100.000 TL,
while the rents of area differ according the districts. To sum up, a location–allocation problem
of 22 facilities to 23 demand nodes is solved. The total cost is calculated. The problem details
are given in Table 1.
Table 1: Problem details
Fixed
ATM # Capacity Latitude Longitude District Demand Latitude Longitude
Cost
ATM1 133267 20000 41.088 29.032 D1 4000 41.050 29.007
ATM2 137047 20000 41.066 29.013 D2 15000 41.086 29.026
ATM3 141347 20000 41.076 29.043 D3 7000 41.067 29.042
ATM4 123558 20000 41.044 29.007 D4 6000 41.062 29.015
ATM5 141248 20000 41.078 29.029 D5 26000 41.079 29.045
ATM6 125510 20000 41.064 29.010 D6 20000 41.047 29.008
ATM7 136575 20000 41.065 29.009 D7 21000 41.056 29.004
ATM8 126375 20000 41.060 29.040 D8 30000 41.081 29.033
ATM9 100694 20000 41.067 29.017 D9 25000 41.064 29.008
ATM10 119171 20000 41.078 29.016 D10 32000 41.089 29.009
ATM11 147586 20000 41.080 29.021 D11 3000 41.059 29.032
ATM12 102779 20000 41.076 29.020 D12 16000 41.075 29.028
ATM13 119514 20000 41.051 29.025 D13 19000 41.067 29.017
ATM14 121286 20000 41.050 29.032 D14 68000 41.078 29.015
ATM15 101344 20000 41.048 29.027 D15 19000 41.051 29.023
ATM16 147416 20000 41.042 29.008 D16 0 41.062 29.022
ATM17 138728 20000 41.042 29.006 D17 14000 41.073 29.020
ATM18 106973 20000 41.044 29.001 D18 7000 41.051 29.026
ATM19 146294 20000 41.042 29.001 D19 35000 41.043 29.004
ATM20 148993 20000 41.039 28.995 D20 18000 41.046 29.003
ATM21 147861 20000 41.039 28.995 D21 3000 41.064 29.027
ATM22 127180 20000 41.042 29.009 D22 24000 41.042 28.998
D23 22000 41.047 29.018
 Both the uncapacitated and capacitated problems solved by using Gamside software
on Intel i7 3.6 GHz personal computer with 8.0 GB of memory. The results of UFLP and
CFLP are given in the Table 2 and Table 3, respectively. Where 13 of the existing ATMs are
opened, considering the distance criterion alone. While in the CFLP, as the capacity of the
ATMs involved in the problem, and a total of 18 ATMs are opened, the added ATMs are
ATM1, ATM2, ATM7, ATM8 and ATM12.

Table 2: UFLP_Results
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
3 1 1
4 1
9 1 1
10 1 1
11 1
13 1 1 1
14 1 1
15 1 1 1
16 1 1
17 1 1
18 1
19 1
22 1

Table 3: CFLP_Results
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
1 10000
2 20000
3 7000 20000
4 4000 1000 5000 15000
7 12000
8 6000
9 19000 20000 20000
10 6000 20000
11 14000
12 8000 2000
13 15000 19000 7000
14 20000 3000
15 16000 3000
16 20000 20000
17 20000 20000
18 20000
19 18000 4000
22 20000

Conclusion
In this study, uncapacitated and capacitated facility location models are presented.
Then a real case study about ATM deployment problem is solved for each model. In the
uncapacitated model 13 ATMs are opened to minimize the total cost due to the distance,
while in the capacitated problem, other 5 ATMs are opened to satisfy customer demand,
considering the ATMs uptime capacity. Obviously, the total cost is increased by 33.8%, while
the capacity constraint is integrated into the model. Further research may focus on integrating
the model with a vehicle routing problem. Including the transactions data for estimating the
individual ATM demand may be another useful approach. The ultimate test would be
comparing the results with the different location models, and discussing the results.

Acknowledgment
This research has been financially supported by Galatasaray University Research Fund
Project 16.402.007
 References
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convolution, Computers & Industrial Engineering 57, 1194–1201
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 Brief biographies of the authors

Mujde Erol Genevois is associate professor in the Industrial Engineering Department at

Galatasaray University, Istanbul (Turkey). She has her PhD in 1999 at National Polytechnic Institute
of Grenoble (France). Her interest areas are production management, logistics and supply chains. She
is author of numerous research papers and book chapters.

Derya Celik Turkoglu graduated from Industrial Engineering Department of Kırıkkale

University. She completed her M.Sc. in Manufacturing Systems Engineering in University of
Warwick. She holds Ph.D. degree in Industrial Engineering from Galatasaray University.

Michele Cedolin is research assistant in the Industrial Engineering Department at Galatasaray

University, Istanbul (Turkey). He holds BS and MS degree in Industrial Engineering from Galatasaray
University. His areas of interest include multi criteria decision making, fuzzy decision making and
artificial intelligence. He continues to his PhD in Institute of Science of Galatasaray University.

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