Multi-item distribution network design problems under volume discount on transportation cost

Abstract

This study considers the distribution network design problems of multi-echelon, multi-item supply chains under volume (weight) discounts on transportation costs. Minimising the total network cost requires determining the following: (1) the service area of distribution centres (DCs); (2) the assignment of retail stores to DCs; and (3) the inventory volume at DCs. This study compares various replenishment policies and discusses the effects of such policies on distribution network design. In general, the results show that single-cluster replenishment is superior to joint cluster replenishment. However, joint cluster replenishment may be superior to single-cluster replenishment under volume (weight) discounts on transportation costs. The results additionally show that single-item replenishment is inferior to multi-item replenishment under volume (weight) discounts on transportation costs. All the problems are formulated as piecewise non-linear programming models with multiple variables. Algorithms are proposed for solving these piecewise non-linear programming problems. Several numerical studies demonstrate the solution procedures and the effects of changing parameters on decision-making.

Keywords:

• inventory
• distribution network design
• multi-item
• transportation

Acknowledgement

The authors express their gratitude to the editor and anonymous reviewers for their detailed comments and valuable suggestions to improve the exposition of this paper. This paper is supported in part by the Ministry of Science and Technology under grants MOST 102-2410-H-011-029-MY3 and 102-2221-E-011-159-MY3.