Optimal shrinking of the distribution chain: the facilities delocation decision

Abstract

Closure of facilities is quite common among both business firms and public sector institutions like hospitals and schools. Although the facilities location problem has been studied extensively in the literature, not much attention has been paid to the closure of facilities. Unlike the location problem, the existing facilities and the corresponding network impose additional constraints on the closure or elimination of facilities and to highlight the difference between the two, we have called this the facilities delocation problem. In this article, we study a firm with an existing distribution network with known retailer and distributor locations that needs to downsize or shrink its distribution chain due to other business reasons. However, it is not a reallocation of demand nodes among the retained distributors. An important condition stipulates that all demand nodes must continue to get their supplies from their respective current distributors except when the current source itself is delocated, and only such uprooted demand nodes will be supplied by a different but one of the retained suppliers. We first describe the delocation problem and discuss its characteristics. We formulate the delocation problem as an integer linear programming problem and demonstrate its formulation and solution on a small problem. Finally, we discuss the solution and its implications for the distribution network.

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