Distribution systems design with two-level routing considerations

In this study, we formulate and analyze a strategic design model for three-echelon distribution systems with two-level routing considerations. The key design decisions considered are: the number and locations of distribution centers (DC’s), which big clients (clients with larger demand) should be included in the first level routing (the routing between plants and DC’s), the first-level routing between plants, DC’s and big clients, and the second-level routing between DC’s and other clients not included in the first-level routing. A hybrid genetic algorithm embedded with a routing heuristic is developed to efficiently find near-optimal solutions. The quality of the solution to a series of small test problems is evaluated—by comparison with the optimal solution solved using LINGO 9.0. In test problems for which exact solutions are available, the heuristic solution is within 1% of optimal. At last, the model is applied to design a national finished goods distribution system for a Taiwan label-stock manufacturer. Through the case study, we find that the inclusion of big clients in the first-level routing in the analysis leads to a better network design in terms of total logistic costs.