Optimal facility location with random throughput costs

Abstract

In this paper we consider the optimal location and size of facilities where the throughput costs for each facility are random. Given a set of origins and a set of destinations, we want to determine the optimal location and size of a set of intermediate facilities in order to minimize the expected total generalized transportation cost. The generalized transportation cost of a freight unit from an origin to a destination passing through a facility is the sum of two terms: the transportation cost from the origin to the destination through the facility and the throughput cost of the facility. While the first term is deterministic, the second one is stochastic with a Gumbel probability distribution. Looking for the expected value of the optimal solution, a mixed deterministic nonlinear problem for the optimal location of the facilities is derived. Two heuristics, which give very good approximations to the optimum, are proposed.