Integrated supply chain and competitive facility location models

Abstract

The optimization of supply chain networks plays a key role in determining the competitiveness of the whole supply chain. Therefore, during the last two decades, an increasing number of studies have focused on the optimization of the overall supply chain network. However, in most of these optimization studies, the structure of the network is considerably simplified and there is still a need for more comprehensive models that simultaneously capture many aspects that are relevant to real-world problems such as demand dynamics on the market. Facility location decisions—more specifically, decisions on the physical network structure of a supply chain network—are important factors affecting chain’s competitiveness, especially for the supply chains serving retail markets. However, supply chain network optimization models in the current literature ignore the impacts of network decisions on customer demand. Nevertheless, competitive facility location problems model only the distribution part of the supply chain, even though they have certain characteristics of supply chain networks and analyze the rival chains existing on the market. In this study, an integrated supply chain network optimization model based on the joint supply chain network optimization and competitive facility location models is proposed to analyze the results of ignoring the impacts of network decisions on customer demand. The unique unknown variable within the model is the demand. The demand at each customer zone is assumed to be determined by price and the utility function. The utility function is defined as the availability of same-day transportation from the distribution center to the customer zone.