The facility location problem with capacity transfers

Abstract

This paper explores the concept of capacity transfer in the context of capacitated facility location problems. This is accomplished by assuming that facilities with surplus capacity/production can cooperate with those facing shortage by transferring part of that capacity/production. Such a transfer incurs a cost that nonetheless may be compensated by savings both in the installation costs and in the distribution costs. Mixed-integer mathematical programming models are proposed for the problem. A distinction is made between the case in which the triangle inequality holds for the transfer costs and the case in which it does not. We present compact models, which are enhanced with valid inequalities that are separated in a branch-and-cut fashion. A comprehensive computational study with several hundreds of instances is reported showing the value of transferring capacities. Overall, this work investigates a problem that is at the core of more comprehensive models emerging in the context of logistics network design.