FACILITY LOCATION MODEL WITH INVENTORY TRANSPORTATION AND MANAGEMENT COSTS

Abstract

This work is focused on the integration of the standard EOQ (Economic Order Quantity) model within the facility location decision model. This is proposed to extend on the facility location task which is usually performed based on just the overall demand of the customer locations to be served. If the inventory costs are considered within the demand supply process, these may affect the overall transportation costs as these are not linearly dependent of the demand. As such, the extended model considers, besides the distances, performance and capacity of the vehicles, the order quantities and the period in which they should be fulfilled. This model was tested with a reference instance of 200 suppliers and one distribution centre. The distances were estimated by considering the geographical locations of all elements in the network and the spherical model of the Earth’s surface to obtain the metric in kilometres. As analysed, by considering the inventory costs within the facility location model, it can lead to refine the location to obtain long-term savings in transportation.

Keywords

• supply chain networks
• model
• facility location problem
• inventory management