Facility location decisions under vehicle routing considerations

Over the past few decades, the concept of integrated logistics system has emerged as a new management philosophy, which aims to increase distribution efficiency. Such a concept recognizes the interdependence among the location of facilities, the allocation of suppliers and customers to facilities and vehicle route structures around depots. In this study, in order to emphasize the interdependence among these, we build a model for the integration of location and routing decisions. We propose our model on realistic assumptions such as the number of vehicles assigned to each facility is a decision variable and the installing cost of a facility depends on how many vehicles will be assigned to that facility. We also analyze the opportunity cost of ignoring vehicle routes while locating facilities and show the computational performance of integrated solution approach. We propose a greedy type heuristic for the model, which is based on a newly structured savings function.