Design of distribution network using hub location model with regard to capacity constraint and service level

The steps for transferring and store a product from the supplier to the customer in the supply chain is called distribution. The primary goal of supply chain managements is to deliver the correct product to the correct place at the correct time while maintaining cost efficiencies. Distribution is one of the most important factors in enterprises profitability because it effect on supply chain cost directly. Hub location problem can be used in designing a distribution network. Hubs are special facilities that serve as switching, transshipment and sorting points in the distribution systems. Instead of serving each origin‐destination pair directly, hub facilities concentrate flows in order to take advantage of economies of scale (Babazadeh and Razmi, 2012). Hub‐and‐spoke networks are employed in various application like cargo transportation, airline system and telecommunication network. In this paper we develop a MILP model for designing distribution network by hub location method regarding hubs capacity and service level. The objective of this problem is minimising transportation and establishment of cost.