Warehouse selection using center-of-gravity method in minimizing transportation cost

Abstract

Warehouse selection is a key part of the distribution business, as it is related directly to the company’s service level and cost of operations. The failure to choose a good warehouse will impact the company’s ability to meet customers’ expectations and its financial position if the expenditures do not meet the expected return. Consequently, it is important to put proper considerations in place before selecting a warehouse. By involving the Indonesia branch of a global chemical distributor company as the research subject, this research aimed to minimize transportation cost in selecting a warehouse. In achieving the objective, center-of-gravity, which is also widely known as the centroid method, is particularly used, assisting location decisions by exploring the spatial distribution of delivery destinations (customers). In addition, the weight to each destination is also an integral part of the consideration, with the goal of serving more small-to-medium customers. The goal of minimizing transportation costs is translated as minimizing distance to customers because of the directly proportionate nature between distance and transportation costs. As the answer to the research objective, this study will generate a set of coordinate points showing the exact location where total distances to customers are the least.