Stochastic facility location with general long-run costs and convex short-run costs

Authors:
Peter Schütz;Leen Stougie;Asgeir Tomasgard
Affiliations:
Department of Industrial Economics and Technology Management, Norwegian University of Science and Technology, 7491 Trondheim, Norway;Eindhoven University of Technology, Department of Mathematics and Computer Science, and CWI, PO Box 94079 GB Amsterdam, The Netherlands;Department of Industrial Economics and Technology Management, Norwegian University of Science and Technology, 7491 Trondheim, Norway and SINTEF Technology & Society, 7465 Trondheim, Norway
Venue:
Computers and Operations Research
Year:
2008

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Abstract

This paper addresses the problem of minimizing the expected cost of locating a number of single product facilities and allocating uncertain customer demand to these facilities. The total costs consist of two components: firstly linear transportation cost and secondly the costs of investing in a facility as well as maintaining and operating it. These facility costs are general and non-linear in shape and could express both changing economies of scale and diseconomies of scale. We formulate the problem as a two-stage stochastic programming model where both demand and short-run costs may be uncertain at the investment time. We use a solution method based on Lagrangean relaxation, and show computational results for a slaughterhouse location case from the Norwegian meat industry.