Designing a distribution network in a supply chain system: Formulation and efficient solution procedure

This paper addresses the distribution network design problem in a supply chain system that involves locating production plants and distribution warehouses, and determining the best strategy for distributing the product from the plants to the warehouses and from the warehouses to the customers. The goal is to select the optimum numbers, locations and capacities of plants and warehouses to open so that all customer demand is satisfied at minimum total costs of the distribution network. Unlike most of past research, our study allows for multiple levels of capacities available to the warehouses and plants. The paper presents a computational study to investigate the value of coordinating production and distribution planning. We develop a mixed integer programming model and provide an efficient heuristic solution procedure for this supply chain system problem.