Warehouse-Retailer Network Design Problem

In this paper, we study the distribution network design problem integrating transportation and infinite horizon multiechelon inventory cost function. We consider the trade-off between inventory cost, direct shipment cost, and facility location cost in such a system. The problem is to determine how m...

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Bibliographic Details
Published in:Operations research Vol. 52; no. 3; pp. 396 - 408
Main Authors: Teo, Chung-Piaw, Shu, Jia
Format: Journal Article
Language:English
Published: Linthicum INFORMS 01.05.2004
Institute for Operations Research and the Management Sciences
Subjects:
Algorithms
Analysis
Business expenses
Carrying costs
Cost efficiency
Cost functions
Design optimization
facilities/equipment planning
integer
Integer programming
Inventories
Inventory
Inventory control
location
Logistics
Management
Optimal solutions
programming
Retail stores
Studies
Transportation
Transportation costs
Warehouse stores
Warehouses
Warehousing
United States
ISSN:0030-364X, 1526-5463
Online Access:Get full text
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Summary:In this paper, we study the distribution network design problem integrating transportation and infinite horizon multiechelon inventory cost function. We consider the trade-off between inventory cost, direct shipment cost, and facility location cost in such a system. The problem is to determine how many warehouses to set up, where to locate them, how to serve the retailers using these warehouses, and to determine the optimal inventory policies for the warehouses and retailers. The objective is to minimize the total multiechelon inventory, transportation, and facility location costs. To the best of our knowledge, none of the papers in the area of distribution network design has explicitly addressed the issues of the 2-echelon inventory cost function arising from coordination of replenishment activities between the warehouses and the retailers. We structure this problem as a set-partitioning integer-programming model and solve it using column generation. The pricing subproblem that arises from the column generation algorithm gives rise to a new class of the submodular function minimization problem. We show that this pricing subproblem can be solved in O ( n log n ) time, where n is the number of retailers. Computational results show that the moderate size distribution network design problem can be solved efficiently via this approach.
Bibliography:SourceType-Scholarly Journals-1
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ISSN:0030-364X
1526-5463
DOI:10.1287/opre.1030.0096