A hybrid optimization/simulation approach for a distribution network design of third party logistics service providers

Third party logistics service providers (3PLs) are playing an increasing role in the management of supply chains. Especially in warehousing and transportation services, a number of clients expect for 3PLs to improve lead times, fill rates, inventory levels, etc. Hence, these 3PLs are under pressure to meet various clients' service requirements in a dynamic and uncertain business environment. As a result, 3PLs should maintain an efficient distribution system of high performance competitive advantages. In this paper, we propose a hybrid optimization/simulation approach to design a distribution network for 3PLs in consideration of the performance of the warehouses. The optimization model uses a genetic algorithm to determine dynamic distribution network structures. Subsequently, the simulation model is applied to capture the uncertainty in clients' demands, order-picking time, and travel time for the capacity plans of the warehouses based on service time. The approach is applied to an example problem for examining its validity.