Multi-Objective Facility Location for Manufacturing Systems in China

Sammanfattning

Factory location is a long-term strategic decision that influences the cost efficiency, service quality,and environmental performance of a manufacturing supply chain. This thesis addresses the locationproblem faced by Westlake Instruments, a Chinese manufacturer of laser slicing equipment for siliconcarbide, diamond, and AR waveguide wafers. The company’s forecast demand for the 2026 to 2028horizon exceeded the production capacity of its existing factory in Hangzhou by a wide margin, whichmotivated an evaluation of where one or more new factories could be located.The location problem is formulated as a bi-objective uncapacitated facility location problemwith two conflicting objectives: minimizing total cost (fixed investment in land and labor plustransport cost) and minimizing the maximum service distance to any demand point. The model isparameterized using company-supplied demand data covering 63 customers across 78 sites, publicindustrial land prices and recruitment wages for 33 candidate cities across China, and actual roaddistances retrieved from the OSRM routing service. The Pareto front of efficient trade-off solutionsis generated using two methods, the epsilon-constraint method and the weighted sum method, whichare then compared in terms of solution quality and computational behavior.The epsilon-constraint method recovers the complete Pareto front of 15 distinct solutions, rangingfrom a cost-optimal configuration with two facilities, a total cost of 1,457 wan yuan, and a maximumservice distance of 3,393 km, to a distance-optimal configuration with seven facilities, a total cost of10,502 wan yuan, and a maximum service distance of 649 km. The weighted sum method identifies12 distinct solutions but misses several intermediate alternatives in non-convex regions of the front.Across all Pareto-optimal solutions, fixed cost contributes between 91 and 99.9 percent of total cost,indicating that the location decision is dominated by fixed investment rather than transport cost.Sensitivity analysis confirms that this conclusion is robust across a wide range of cost and demandassumptions. The most attractive solution from a managerial perspective lies near the knee of thePareto front, where opening one additional facility in central China reduces the maximum servicedistance by more than half at a limited cost increase. The results suggest that this type of centrallocation provides the strongest compromise between cost efficiency and service responsiveness,while also offering potential environmental benefits and strategic advantages related to logisticsinfrastructure, regional coverage, and access to technical expertise.