Course : ISYE6065-Dynamic Service Facility Design

Effective Period : September 2017

Models for the Location Problem

Session 2
Qualitative analysis
 Techniques for Discrete Space
Location Problems
• Qualitative Analysis
1. List all factors that have an impact on the location
decision
2. Assign appropriate weights (typically between 0 and 1 to
each factor based on the relative importance of each
-> AHP
3. Assign score (typically between 0 and 100) to each
location with respect to each factor identified in step 1
4. Compute the weight score for each factor for each
location by multiplying its weight by the corresponding
score
5. Compute the sum of the weighed score for each
location and choose a location based on the score

Some material is took from Heragu, Facilities Design, third edition

Quantitative analysis
 Techniques for Discrete Space
Location Problems
• Quantitative Analysis
– Transportation model : to determine the optimal
distribution of goods between the facility and any
customer.
– To minimize the total distance traveled
– To minimize overall cost of transporting goods

Some material is took from Heragu, Facilities Design, third edition

 Transportation Model

• The problem facing rental companies like Avis, Hertz, and

National is cross-country travel. Lots of it. Cars rented in New
York end up in Chicago, cars from L.A. come to Philadelphia, and
cars from Boston come to Miami. The scene is repeated in over
100 cities around the U.S. As a result, there are too many cars in
some cities and too few in others. Operations managers have
to decide how many of these rentals should be trucked (by
costly auto carriers) from each city with excess capacity to
each city that needs more rentals. The process requires quick
action for the most economical routing; so rental car companies
turn to transportation modeling.
 Transportation Model

• Definition : An iterative procedure for solving problems that

involves minimizing the cost of shipping products from a
series of sources to a series of destinations
 Transportation Model

Transportation modeling finds the least-cost means of shipping

supplies from several origins to several destinations

First Step -> Set up a transportation matrix (purpose is to

summarize all relevant data and to keep track of algorithm
computations.)

Second Step -> Developing Initial Solution

1. The Northwest Corner Method
2. The Minimum Cell Cost Method
3. Vogel’s Approximation Model

Third Step -> Find Optimal Solution

4. Stepping-stone solution method
5. Modified distribution method (MODI).
 Transportation Model
• The firm must decide which of its factories should supply which of
its warehouses. Relevant data are presented in Table and Figure
 Transportation Model
• First Step -> Set up a transportation matrix
 Transportation Model

• Second Step -> Developing Initial Solution

• The Northwest-Corner Rule : Initial allocation

is made to the cell in the upper left-hand corner
of the Table

• The steps of the northwest corner method are summarized

here:
1. Allocate as much as possible to the cell in the upper left-hand
corner, subject to the supply and demand constraints.
2. Allocate as much as possible to the next adjacent feasible
cell.
3. Repeat step 2 until all rim requirements have been met.
 Transportation Model

• Second Step -> Developing Initial Solution

• The Minimum Cell Cost Method : The initial allocation is

made to the cell in the tableau having the lowest cost (A cost-
based approach)

• The specific steps of the minimum cell cost method are

summarized next:
1. Allocate as much as possible to the feasible cell with the
minimum transportation cost, and adjust the rim
requirements.
2. Repeat step 1 until all rim requirements have been met.
 Transportation Model
• Second Step -> Developing Initial Solution

• Vogel’s Approximation is based on the concept of penalty cost or regret. If a

decision maker incorrectly chooses from several alternative courses of action,
a penalty may be suffered (and the decision maker may regret the decision
that was made). In a transportation problem, the courses of action are the
alternative routes, and a wrong decision is allocating to a cell that does not
contain the lowest cost.

• The steps of Vogel’s approximation model can be summarized in the following

list:
• 1. Determine the penalty cost for each row and column by subtracting the
lowest cell cost in the row or column from the next lowest cell cost in the same
row or column.
• 2. Select the row or column with the highest penalty cost (breaking ties
arbitrarily or choosing the lowest-cost cell).
• 3. Allocate as much as possible to the feasible cell with the lowest
transportation cost in the row or column with the highest penalty cost.
• 4. Repeat steps 1, 2, and 3 until all rim requirements have been met
 Transportation Model
• Third Step -> Find Optimal Solution

• Stepping-stone solution method (The stepping-stone method determines

whether there is a cell with no allocation that wouldreduce cost if used.)

1. Select any unused square to evaluate.

2. Beginning at this square, trace a closed path back to the original square via
squares that are currently being used (only horizontal and vertical moves are
permissible). You may, however, step over either an empty or an occupied
square.
3. Beginning with a plus (+) sign at the unused square, place alternating minus
signs and plus signs on each corner square of the closed path just traced.
4. Calculate an improvement index by first adding the unit-cost figures found in
each square containing a plus sign and then by subtracting the unit costs in each
square containing a minus sign.
5. Repeat steps 1 through 4 until you have calculated an improvement index for
all unused squares. If all indices computed are greater than or equal to zero, you
have reached an optimal solution. If not, the current solution can be improved
further to decrease total shipping costs.
 Transportation Model

• Third Step -> Find Optimal Solution

• The basic solution principle in a transportation problem is to

determine whether a transportation route not at present
being used (i.e., an empty cell) would result in a lower total
cost if it were used
• Each negative index represents the amount by which total
transportation costs could be decreased if one unit was shipped
by the source destination combination.
ISYE6065
Dynamic Service Facility Design