Designing a service system with price- and distance-sensitive demand: A case study in mining industry

Abstract

This study incorporates pricing decision into a congested facility location problem with immobile servers. The operations of facilities are modelled as queueing systems with price- and distance-sensitive streams of customer arrivals. Given a set of potential locations, a central service provider decides on the location of facilities, the allocation of customers to open facilities and also the service rate and price at each facility. The service provider’s profit maximization problem is investigated in two settings, i.e., continuous and discrete service rates, each representing a class of real-world problems. In either case, the resulting mixed-integer non-linear program is reformulated as a mixed-integer second-order cone program which enables us to solve it in a reasonable time using commercial software packages. To demonstrate the applicability of the proposed models, a real-world case in the mining industry is presented and solved.