On the coordination of product and by-product flows in two-level distribution networks: Model formulations and solution procedures

We study the problem of coordinating product and by-product flows in a two-level distribution network. In this problem, a single product is produced at multiple plants in order to fulfil customer demands. Furthermore, in the production process a by-product is produced, that must be transported to, and processed at a post-processing unit. The problem objective is to determine suitable locations for plants and post-processing units from a predetermined set of feasible locations, such that total costs are minimal. Here, total costs consist of fixed costs associated with opening plants and post-processing units, and variable costs associated with transport of product and by-product. We discuss alternative mathematical model formulations for this problem, and derive lower and upper bounding procedures. The results from computational experiments – in which we analyse the numerical behaviour of these procedures – are also reported.