Facility reliability issues in network p-median problems:: Strategic centralization and co-location effects

In this paper, we analyze a facility location model where facilities may be subject to disruptions, causing customers to seek service from the operating facilities. We generalize the classical p-median problem on a network to explicitly include the failure probabilities, and analyze structural and algorithmic aspects of the resulting model. The optimal location patterns are seen to be strongly dependent on the probability of facility failure, with facilities becoming more centralized, or even co-located, as the failure probability grows. Several exact and heuristic solution approaches are developed. Results of numerical experiments are reported.