Location, Routing, and Inventory

Read this article. In it, a model is presented to help determine the number of distribution centers, their locations, and capacity among other factors. Among the 15 assumptions presented, which do you feel are most important and least important?


Nowadays, rapid economic changes and competitive pressure in the global market make companies pay more attention on supply chain topics. The company whose supply chain network structure is more appropriate has higher competitive advantage. This structure helps to overcome environmental disturbances. Analyzing location issues and decision making about facility location is considered as one of the important issues of decision making in companies. Certainly, appropriate facility location has high effects on economic benefits, appropriate service, and customer's satisfaction. Propounding the supply chain because of its effect on factors of operational efficiency, such as inventory, response, and lead time, specific attention is focused on how to create a distribution network. Facility location and how to relate them with customers are an important factor in designing a distribution network.

As nowadays living conditions have changed due to increasing world changes, mutually, situations have changed where supply chains are confronted with and influenced by them. The manager is confronted with more unknown conditions and new risks. Customers' demands have been more uncertain and various, and the lead time on their services is very effective. The demand variety can be recognized as one of the important sources of uncertainty in a supply chain. Hence, inventory and product holding in a distribution center are an important issue in the supply chain. The inventory existence in these centers can lead to a great success in reaching the risk-pooling advantage in order to overcome the variability of customer demands. The proposed risk-pooling strategy and centralizing the inventory at distribution centers are considered as one of the effective ways to manage such a demand uncertainty to achieve appropriate service levels to customers. The lead time is one of the effective factors in safety stock levels due to customer demand uncertainty. For sure, whether the amount of the level is low for the product, it is considered an additional value that one can gain a long-term or short-term competitive advantage in the market.

The lead time is dependent on different factors, such as transportation mode. Different modes of transportation include a reverse relation between cost and time. It contains different routes for any type of vehicles. The implicit assumption is that a faster transportation mode is also the more expensive one, creating a trade-off between cost and time affecting the distribution network configuration. In the recent decades, the topic of multi-depot heterogeneous vehicle routing problem is presented in order to increase the productivity and efficiency of transportation systems, in which this model leads to the least cost function by minimizing the number of vehicles.