Planning Sales Territories — A Facility Location Approach

Planning sales territories may be viewed as the problem of grouping small geographic sales coverage units (e.g. counties, zip code areas, company trading areas) into larger geographic clusters called sales territories in such a way that the latter are acceptable according to managerially relevant criteria (e.g. minimal/maximal/average sales potentials or travel times). In contrast to the currently available set-partitioning oriented models, we propose a facility location approach for planning sales territories. The integer programming formulation we developed for this approach is a discrete capacitated m-median problem with the additional requirement that sales territories have to be connected. As this problem is NP-hard, we devised an efficient, interchange based heuristic procedure for solving large scale problems. The algorithms are embedded in the so-called BusinessManager, a software tool developed by Geomer GmbH, Germany.