Planning and coordination of production and distribution facilities for multiple commodities

We study an integrated logistics model for locating production and distribution facilities in a multi-echelon environment. Designing such logistics systems requires two essential decisions, one strategic (e.g., where to locate plants and warehouses) and the other operational (distribution strategy from plants to customer outlets through warehouses). The distribution strategy is influenced by the product mix at each plant, the shipments of raw material from vendors to manufacturing plants and the distribution of finished products from the plants to the different customer zones through a set of warehouses. First we provide a mixed integer programming formulation to the integrated model. Then, we present an efficient heuristic solution procedure that utilizes the solution generated from a Lagrangian relaxation of the problem. We use this heuristic procedure to evaluate the performance of the model with respect to solution quality and algorithm performance. Results of extensive tests on the solution procedure indicate that the solution method is both efficient and effective. Finally a ‘real-world’ example is solved to explore the implications of the model.