A design of distribution network and development of efficient distribution policy

The distribution system design considered in this paper is derived from current operations of a major consumer product company in India who manages products for nationwide distribution. The company is charged with Central Sales Tax (CST) along with local tax VAT for the trade that happens across the state borders while distributing the products from the factories. To avoid CST, company could consider opening warehouses in each state. This will have an extra cost of opening and operating warehouse in each state. So, this needs a cost trade‐off between the option of continuing with the existing system or opening a new warehouse. Accordingly, a two‐stage integrated solution framework is proposed in this study. In the first stage, a mathematical model is proposed to solve the facility location and production distribution policy for the company by minimising the cost comprising production costs at factory, fixed and labour cost of new warehouses and shipment cost from factories to warehouses and warehouses to distributors. In the second stage, a breakeven analysis is proposed to compare the new proposed network with the existing network based on the distribution cost. The workability of the proposed framework is demonstrated using a pseudocase developed based on the observation of the company, particularly for nationwide existing distribution.