Determining an optimal warehouse location, capacity, and product allocation in a multi-product, multi-period distribution network: a case study

Abstract

This paper addresses the distribution network design problem in a complex four-echelon supply chain system that includes factories, internal warehouses, external warehouses and customers. The distribution network contains a large number of products and considers 20 periods of planning horizon. Product deliveries are made using two shipment methods, direct shipment from internal warehouse and through shared external warehouse, to two groups of customers, domestic and overseas, with deterministic demands. The objective is to determine an optimal location of a new external warehouse, its capacity, and product-facility-market allocation so as to minimise the total logistics cost, including transportation and warehousing costs. A real-world large-scale problem from industry is solved optimally using a mixed integer linear programming model. A sensitivity analysis on three key parameters, product demand, unit transportation cost, and unit warehousing cost, is conducted to find the final solution.