Competitive Facility Placement for Supply Chain Optimization

Summary The decision of where to place a company‘s distribution and outlet facilities when entering a new market is a crucial one faced by today‘s retail company supply chain planners. This problem alone is complicated enough and is currently an active area of research [1], [2]. The problem is further complicated when there exists a rival company intent on servicing the same market by implementing a parallel distribution network. Similar competitive problems have been studied by [3] and [4]. In this problem, two competitor companies are both interested in an answer to the same two questions: 1. Where should the distribution centre be located? and, 2. Where should the retail outlets be located (what areas of the market are to be serviced)? Both companies answer these questions with the understanding that its rival will attempt to maximize its own profits. There is one leader company which moves first. A follower company moves second and makes its decision with the knowledge of the leader company‘s move. In this paper, a bilevel optimization method is presented for solving the dynamic and continuous competitive facility placement problem.