Invited Review
Facility location and supply chain management – A review

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Abstract

Facility location decisions play a critical role in the strategic design of supply chain networks. In this paper, a literature review of facility location models in the context of supply chain management is given. We identify basic features that such models must capture to support decision-making involved in strategic supply chain planning. In particular, the integration of location decisions with other decisions relevant to the design of a supply chain network is discussed. Furthermore, aspects related to the structure of the supply chain network, including those specific to reverse logistics, are also addressed. Significant contributions to the current state-of-the-art are surveyed taking into account numerous factors. Supply chain performance measures and optimization techniques are also reviewed. Applications of facility location models to supply chain network design ranging across various industries are presented. Finally, a list of issues requiring further research are highlighted.

Introduction

Facility location is and has been a well established research area within Operations Research (OR). Numerous papers and books are witnesses of this fact (see, e.g. [29] and references therein). The American Mathematical Society (AMS) even created specific codes for location problems (90B80 for discrete location and assignment, and 90B85 for continuous location). Nevertheless, the question of the applicability of location models has always been under discussion. In contrast, the practical usefulness of logistics was never an issue. One of the areas in logistics which has attracted much attention is Supply Chain Management (SCM) (see, e.g. [114] and references therein). In fact, the development of SCM started independently of OR and only step by step did OR enter into SCM (see, e.g. [18]). As a consequence, facility location models have been gradually proposed within the supply chain context (including reverse logistics), thus opening an extremely interesting and fruitful application domain. There are naturally several questions which immediately arise during such a development, namely: (i) What properties does a facility location model have to fulfill to be acceptable within the supply chain context? (ii) Are there existing facility location models which already fit into the supply chain context? (iii) Does SCM need facility location models at all?

As the number of papers has increased tremendously in the last few years and even the Association of European Operational Research Societies (EURO) has recently devoted a Winter institute to this topic [35], we felt that the time was ripe to have a review paper looking exactly at the role of facility location models within SCM. Before starting the review we briefly define our two main objects of investigation, namely facility location and SCM.

A general facility location problem involves a set of spatially distributed customers and a set of facilities to serve customer demands (see, e.g. [29], [90]). Moreover, distances, times or costs between customers and facilities are measured by a given metric (see [96]). Possible questions to be answered are: (i) Which facilities should be used (opened)? (ii) Which customers should be serviced from which facility (or facilities) so as to minimize the total costs? In addition to this generic setting, a number of constraints arise from the specific application domain. For recent reviews on facility location we refer to Klose and Drexl [58] and ReVelle et al. [97].

SCM is the process of planning, implementing and controlling the operations of the supply chain in an efficient way. SCM spans all movements and storage of raw materials, work-in-process inventory, and finished goods from the point-of-origin to the point-of-consumption (see [114] and the Council of Supply Chain Management Professionals [21]). Part of the planning processes in SCM aims at finding the best possible supply chain configuration. In addition to the generic facility location setup, also other areas such as procurement, production, inventory, distribution, and routing have to be considered (see [20]). Historically, researchers have focused relatively early on the design of distribution systems (see [58] and references therein) but without considering the supply chain as a whole.

Since it is not possible to survey all the literature associated both with facility location and SCM, we will concentrate our review on articles published in the last decade that go beyond location–allocation decisions (and thus, we will exclude simple single facility location and pure resource allocation models). Moreover, we will only consider discrete models. Although continuous facility location models may as well play a role in our context, they often have a macroeconomics flavour which would distract us from the typical SCM perspective. With this scope in mind, we identified approximately 120 articles that were published in the last decade, including a few papers that will appear in 2008. Further screening yielded 98 articles from 19 journals that address relevant aspects to our analysis. Of these, 56 were published in 2004 or later, which clearly shows the recent progress this research area is experiencing. For example, compared to the year 2002, the number of publications doubled in 2007 (22 against 11). In particular, the European Journal of Operational Research has been a major forum for the presentation of new developments and research results (in total 44 articles were identified). Other journals such as Computers & Operations Research (18 papers), Interfaces (six papers), Transportation Research (seven papers), and Omega and International Journal of Production Economics (each with six articles) have significantly contributed to this emerging research field.

The remainder of the paper is organized as follows: Section 2 focuses on the relation between facility location and SCM. Section 3 is devoted to reviewing facility location papers in strategic SCM. Optimization methods for solving facility location problems in a supply chain context are reviewed in Section 4 as well as practical applications of location models in SCM. The paper ends with some conclusions and possible directions for future research.

Section snippets

Facility location and SCM

In a discrete facility location problem, the selection of the sites where new facilities are to be established is restricted to a finite set of available candidate locations. The simplest setting of such a problem is the one in which p facilities are to be selected to minimize the total (weighted) distances or costs for supplying customer demands. This is the so-called p-median problem which has attracted much attention in the literature (see, e.g. [24], [29], [96]). This setting assumes that

Strategic supply chain planning

In this section we give a synthesis of the existing literature in terms of essential aspects and decisions (strategic as well as tactical/operational) that should be included in facility location models to support the decision-making process in SCM.

Supply chain optimization and applications

We complete our review of the literature on facility location models in an SCM environment by presenting additional information regarding the papers listed in Table 1. We analyze the type of supply chain performance measures used, the methodology followed to solve the problems, and applications of facility location models to strategic supply chain planning.

Fig. 2 depicts the type of objective function that measures supply chain performance. The majority of the papers feature a cost minimization

Conclusions and directions for further research

In this paper we reviewed the most recent literature on facility location analysis within the context of SCM and discussed the general relation between facility location models and strategic supply chain planning. Moreover, we identified the characteristics that a facility location model should have to adequately address SCM planning needs. We dedicated separate sections to the relation between facility location and SCM, facility location models within SCM, and solution methods as well as

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