The picture you have attached is not very clear to read the text. But I am going to guess what is going on:
When you use Add Locations to add some locations to a layer, it defaults to the first input sub-layer. In your case with Location-Allocation, that should be the Facilities. So when you get ready to add the Demand Locations, make sure you map it to the Demand and not the default Facilities. For example, in your existing model, open the second AddLocation and the second input on the form is called "sublayer" and it will set to Facilities. Change it (drop down) to Demand Points and save the model.
Jay Sandhu