Facility location based on Adjusted Present Value

Abstract

Supply chain network design aims to optimize strategic decisions such as facility location decisions.

These decisions have a major impact on the supply chain, but also on the financial value of the company. However, financial considerations are often omitted from facility location mathematical models.

This paper addresses the challenge of identifying a relevant financial indicator that can be practically implemented in facility location models across different industries.

This paper makes several contributions: the Adjusted Present Value (APV) is identified as such a financial indicator; we propose a mathematical formulation that embeds the APV in a facility location model maximizing firm value; computational experiments demonstrate the tractability of the model. Finally, we compare the mathematical model with a sequential approach that first optimizes logistical decisions and then financial decisions. The proposed model improves the sequential approach up to 5.5%, increases the market coverage and anticipates facility location decisions.