Integrated Make-or-Buy and Facility Layout Problem with Multiple Products

Layout decisions represent an important step in production planning as they significantly affect the efficiency of a facility. They typically follow after make-or-buy decisions and capacity planning of a firm, and belong to the lowest level in the hierarchy of tactical production decisions. Sequential decision making neglects however the potential interaction between consecutive planning levels and may lead to inefficiencies. We propose an approach to a simultaneous make-or-buy decision making and facility layout planning in the presence of multiple products. To this end, we introduce a generalization of the classical quadratic assignment problem that takes into account (i) the costs of outsourcing, and (ii) the impact of layout decisions on the production costs of individual products. We further propose a solution approach based on the linearization of the resulting model and derive basic properties of the optimal planning decisions.