European Journal of Operational Research 79 (1994) 325-339 325 North-Holland Theory and Methodology On the coordination of product and by-product flows in two-level distribution networks: Model formulations and solution procedures Jacqueline M. Bloemhof-Ruwaard Wageningen Agricultural University, P.O. Box 9101, 6700 HB Wageningen, Netherlands Marc Salomon Rotterdam School of Management, Erasmus University, P.O. Box 1738, 3000 DR Rotterdam, Netherlands Luk N. Van Wassenhove INSEAD, Boulevard de Constance, Fontainebleau 77305 Cedex, France Abstract: 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 mathemat- ical 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. Keywords: Two-level location problem; Integer programming; Heuristics 1. Introduction The problem discussed in this paper is an extension of the classical facility location problem. The classical location problem deals with the design of an 'optimal' distribution structure, based on a trade-off between fixed and variable costs. In the mathematical models used to analyse location problems, fixed costs are usually associated with opening plants and distribution centers, while variable Correspondence to: Dr. M. Salomon, Rotterdam School of Management, Erasmus University, P.O. Box 1738, 3000 DR Rotterdam, Netherlands. 0377-2217/94/$07.00 © 1994 - Elsevier Science B.V. All rights reserved SSDI 0377-2217(93)E0015-P