AN INVESTIGATION OF THE RELATIONSHIP BETWEEN FACILITY LOCATION DECISIONS, SERVICE LEVEL AND DISTRIBUTION COSTS: A PROPOSED MODEL FOR INDONESIAN LPG SUPPLY CHAIN

Abstract

This paper proposes models of Indonesian multi-echelon LPG distribution system by opening new facilities (new echelon) taking into account the current facilities and investigates the implications of the proposed models to distribution components such as transportation, inventory and shortage decisions. The objectives are to determine the optimum location and allocation of LPG facilities and investigate the relation between distribution costs such as transportation, inventory cost and location decisions in Indonesian multi-echelon LPG supply chain. Capacitated fixed-charged facility location-allocation problem is used to determine the optimal solution of the proposed model. The output of the optimal solutions reported that the costs associated to the proposed distribution are lower than the associated costs in the existing distribution system. It is noted that there is US$ 106.57 million saving per year of total cost by applying the proposed distribution system. In the sensitivity analysis, it is indicated that the trade-offs between facility locations and distribution costs are exist. Results report that as the number of facility increases, total transportation and inventory cost also increase.Keywords: Facility Location; Allocation; Inventory; Transportation.