ARISTOTLE UNIVERSITY OF THESSALONIKI SCHOOL OF ECONOMIC SCIENCES MSc “LOGISTICS AND SUPPLY CHAIN MANAGEMENT” THE FACILITY LOCATION PROBLEM MASTER THESIS: Submitted for the degree of Master of Science by: NTOUFA MARGARITA (AEM: 13) EXAMINATION COMMITTEE: SUPERVISION: DIAMANTIDIS ALEXANDROS MEMBER: BOUTSOUKI CHRISTINA, ZIKOPOULOS CHRISTOS Thessaloniki, February 2017 1 2 DECLARATION OF OWN WORK I declare that this master thesis with the following issue ‘The Facility Location Problems’ is my own work and any material could be considered as the work of others, it is fully referenced. I agree that the Library can make its copies freely available for inspection. Also, as prescribed in the Copyright Law, the extensive copying of this thesis is allowable only for scholarly purposes, consistent with “fair use”, for any other reproduction or any purposes is not be allowed without my written permission. Signature: Name of student: NTOUFA MARGARITA Name of supervisor: DIAMANTIDIS ALEXANDROS DATE……………………………. Copyright © Ntoufa Margarita, 2017 3 Dedicated To My Precious Family 4 ABSTRACT This master thesis investigates Facility Location Problem, Known as the Location theory or Location analysis. The first optimization problem which is studied from many researchers for many centuries was the location problems. Various disciplines have studied this problem, such as economy, computer science, mathematics, geography, marketing, operation research and many more. There are four elements which describe location problems: A. Customers (who are already located at points or on route). B. Facilities where will be located yet. C. A space in which located customers and facilities. D. Finally, standard metrics that show distances or time between customers and facilities. The target of the location problem has to do with service of facilities with minimum speed and the minimal cost, in order to satisfy the customer under some set of constraints. In addition, each facility location problems is unique and these problems are very easy to be understood but not easy to be solved. On one hand, the selection of a facility location is an important decision for the following: companies, plants, warehouses, distribution centers, shops, hospitals, schools, fire station, courier service, police station, post office, ambulance facilities etc., and for supply chain generally. But on the other hand, is a difficult decision because it would be costly, and after an installation it is difficult to change the location. Furthermore, many of the operations that are become in the company rely on the location of its facilities. In order to understand this topic better, the following project is divided into three parts and seven chapters. Figure 1, shows the way of study from the first chapter to the last chapter, from introduction to discussion and conclusion. Also, we quote literature on recent developments of facility location problem for the selection suitable sites not only to locate their firms but also to give profitability for the facility’s lifetime, consequently the optimum location of the company’s facilities can lead to growth rapidly and it has a target to satisfy the customers as good as possible. 5 Chapter 1 Chapter 2 Introduction Literature Review Chapter 3 Chapter 4 Methodology Results and Analysis I Chapter 5 Chapter 6 Discussion Conclusion Chapter 7 Direction for future research Figure 1: a brief review of chapters Chapter 1: In this chapter, a brief review of Facility Location and mainly in Facility Location Problems. Chapter 2: In this chapter, we will go into details of facility location problems, such as definition, classifications, and factors which affect the location decision and the international facility location-decision making factors. Chapter 3: In this chapter, we will present the methodology of location facility. We will refer AHP and fuzzy method. In addition, we will mention some location analysis techniques, the classification of models, the basic models of facility location and the measurement types for distances. Chapter 4: In this chapter, we will mention the analysis and the results of a real case study of a Greek company COCOLAK. Chapter 5: In this chapter, we will discuss about the result and we will suggest an optimal solution for a rent or build a new warehouse in order to store all amusement games. Moreover, we will apply some of techniques and models which we mentioned in Chapter 3. Chapter 6: In this chapter, we will quote our conclusion of this research. Chapter 7: Last but not least chapter, we will give some information about future research. 6 ACKNOWLEDGMENTS After, one and half year of my studying, we have come to the end of our journey at Aristotle University of Thessaloniki, specialized in Logistics and Supply Chain Management. Since the start of my Master’s program i knew that i would follow hard work and endless hours of study. This project has been conducted in order to obtain an MSc degree in Logistics and was carried out from October 2015 to February 2017. This project would not have been possible without the support of many people. First of all, I would like to express my deepest gratitude to my supervision Diamantidi Alexandro who encouraged, advised and guided me during of writing the master thesis and led me in the right direction. In addition, grateful acknowledgement to my parents, George and Anastasia for providing me the opportunity to be here, and their love and support during this hard work. They were always there when I needed them. Also, I would like to thank my brother John, who helped me to maintain a sense of humor reminding me not to take myself too seriously. It is impossible for me not to recognize their full support this year. I would like also to thank my friend Christiana where the company ‘’COCOLAK’’ is family company. We had an excellent communication and she responded quickly whenever I have had any questions about the data who gave me in order to finish my master thesis. Also, thanks to my faculty for the knowledge offered me in order to improve myself. Last, I would like to thank my numerous friends who offered support, love, encouragement, patience and above understood me during this project. Without them, this master thesis would never have been finished. Yours sincerely, Ntoufa G. Margarita 7 TABLE OF CONTENTS ABSTRACT ...........................................................................................................5 ACKNOWLEDGMENTS .......................................................................................7 HISTORICAL EVOLUTION OF LOGISTICS .................................................... 13 CONCEPTS ........................................................................................................ 14 PART I ................................................................................................................ 15 CHAPTER 1 ........................................................................................................ 15 1. INTRODUCTION ............................................................................................................................... 15 CHAPTER 2 ........................................................................................................ 16 2. LITERATURE REVIEW ..................................................................................................................... 16 2.1 FACILITY LOCATION ..................................................................................................................... 16 2.2 CLASSIFICATION OF LOCATION FACILITY PROBLEMS .......................................................... 19 2.3 FACTORS AFFECTING THE LOCATION DECISION ................................................................... 20 2.3.1 INTERNATIONAL FACILITY LOCATION – DECISION MAKING FACTORS ............... 22 PART II .............................................................................................................. 27 CHAPTER 3 ........................................................................................................ 27 3.1METHODOLOGY ............................................................................................................................. 27 3.2 THE ANALYTIC HIERARCHY PROCESS (AHP)............................................................................ 28 3.2.1 THE CHARACTERISTICS OF AHP....................................................................................... 29 3.2.2 THE STEPS OF AHP ............................................................................................................... 29 3.2.3 PROS AND CONS OF AHP .................................................................................................... 30 3.3. FUZZY LOGIC ................................................................................................................................ 30 3.4 LOCATION ANALYSIS TECHNIQUES ........................................................................................... 31 3.4.1. LOCATION FACTOR RATING METHOD........................................................................... 31 3.4.2 CENTER OF GRAVITY TECHNIQUE .................................................................................. 32 3.4.3 LOAD –DISTANCE TECHNIQUE ......................................................................................... 34 3.5 CLASSIFICATION OF MODELS OF LOCATION FACILITIES ..................................................... 35 3.5.1 THE CLASSIFICATION OF FRANCIS AND WHITE (1974) ..............................................