Production, transportation, and distribution planning in a multi-commodity tri-echelon system

To achieve high productivity in manufacturing plants and warehouses, an orderly and flexible flow of materials is essential. The interaction between the manufacturing plants and ware-houses and issues related to distribution of multiple commodities to customers from warehouses represents a crucial step toward an integrated and systematic facilities’ design. In this paper the authors develop a mixed integer programming model for the plant and warehouse location problem where the objective is to minimize the total transportation and distribution costs and the fixed costs for opening and operating plants and warehouses. They employ Lagrangian relaxation to the model, and also present a heuristic to produce an effective feasible solution for the problem. This problem has resulted from a study conducted by the authors for a large company manufacturing health-care products. The paper reports on the development of a model structure that can be used to predict the performance of the company.