Integrated decision support framework for distribution network design

Abstract

In the current business environment of competition shifting from company-to-company to supply chain against supply chain, there is an increasing need for logistics providers (LSP) to gain cost effectiveness with no compromise on service levels. One key initiative that LSP can undertake is to allocate and utilise their storage and transportation assets optimally. The current work is an attempt in that direction and provides a hands-on decision support framework that integrates MCDM, network optimisation, and discrete event simulation to address distribution network design and transport optimisation. The use case of PT Pos Indonesia in the metropolitan area of Greater Surabaya highlights the benefits of combining ICT tools with well-established best practices in supply chain management. Findings of this work highlight that the number of distribution facilities for the case at hand should be reduced from nine to four. Compared to the existing, the identified network configuration unlocks potential cost saving in transportation and warehousing of 18%–22%, reduces CO₂ emissions by nearly 30%, with no deterioration in service level. Managerial implications about transportation policies are highlighted in the conclusive part of this paper.

Keywords:

• supply chain network design
• simulation
• network optimization
• multi-criteria decision making (MCDM)
• Asia-Pacific
• environmental sustainability

ORCID

Sunil Tiwari http://orcid.org/0000-0002-0499-2794

Notes

1 IDR stands for Indonesia Rupiah. At the time of this study, 1 US$ is exchanged with almost 14,000 IDR.

2 ELT service level by Products is defined as the ratio in between number of orders delivered on time and total number of placed orders by customers.

3 Maximum number of vehicles is defined as maximum quantity of vehicles that are simultaneously on the road per day, per DC.

4 Average number of vehicles refers to the number of vehicles which, regardless of their type, were used in average throughout the period of reference,

5 Total Transportation Cost is defined as total cost in IDR dollars required to perform distribution.

6 These calculations show the numerical illustration for the case of motorcycles. Basically, this figure estimates that for a motorcycle running for 1 km, costs (in terms of fuel) 164 IDR.

7 This information was provided by PT Pos Indonesia

8 Exact figures are not indicated to respect the non-disclosure agreement with PT Pos Indonesia

9 Manpower costs (delivery men and processing at DCs) will not be affected by changes of distribution network configuration.