Warehousing and distribution network design from a third-party logistics (3PL) company perspective

Abstract

This paper deals with the problem of optimising the network of a Third-Party Logistics (3PL) company, placing emphasis on the distinct characteristics of the 3PL environment. The goal is to minimise the warehousing and distribution costs for both forward and reverse product flows. A new Mixed Integer Linear Program (MILP) model is proposed to address this interesting problem. The related decisions include: selection of (a) warehouse(s) and the related product inventory quantities, (b) product unit loads transported, (c) truck combinations employed to perform the corresponding forward and reverse trips. The model was applied in a case study of a 3PL company to optimise part of its forward supply chain that comprises three warehouses, 23 suppliers and 53 customers. The results obtained were very encouraging, since overall warehousing and distribution costs were lowered by 10.8%. Sensitivity analysis indicated that additional savings may result from optimising warehousing capacities. The main contributions of this work are the inclusiveness of key aspects of the 3PL environment in the proposed model, as well as placing emphasis on warehousing costs and on management of truck capacities. A secondary contribution is the validation of the model’s value through a comprehensive case study.