Warehousing and distribution network design from a third-party logistics (3PL) company perspective

Abstract

This paper deals with the problem of optimising the network of a Third-Party Logistics (3PL) company, placing emphasis on the distinct characteristics of the 3PL environment. The goal is to minimise the warehousing and distribution costs for both forward and reverse product flows. A new Mixed Integer Linear Program (MILP) model is proposed to address this interesting problem. The related decisions include: selection of (a) warehouse(s) and the related product inventory quantities, (b) product unit loads transported, (c) truck combinations employed to perform the corresponding forward and reverse trips. The model was applied in a case study of a 3PL company to optimise part of its forward supply chain that comprises three warehouses, 23 suppliers and 53 customers. The results obtained were very encouraging, since overall warehousing and distribution costs were lowered by 10.8%. Sensitivity analysis indicated that additional savings may result from optimising warehousing capacities. The main contributions of this work are the inclusiveness of key aspects of the 3PL environment in the proposed model, as well as placing emphasis on warehousing costs and on management of truck capacities. A secondary contribution is the validation of the model’s value through a comprehensive case study.

KEYWORDS:

• Warehousing
• distribution
• inventory
• network design
• third-party logistics (3PL)

Acknowledgements

We would like to acknowledge the immense and timeless contribution of Dr. Jean-Marie Proth to management science and operational research. Some of us have been very lucky to have Jean-Marie as a mentor and dear friend. His guidance, openness to share and love for research and problem solving has affected our research attitudes and careers and, through us, the careers of our students.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

The data that support the findings of this study are available from the corresponding author, IM, upon reasonable request.

Additional information

Notes on contributors

Georgios Karagiannis

Georgios Karagiannis is a financial and management engineer, graduated from the University of the Aegean. Ηe holds an Integrated Master's degree. He has conducted research in the field of Logistics and Supply Chain. He currently works at a major Logistics Company as a transport manager.

Ioannis Minis

Ioannis Minis is a professor in the Department of Financial and Management Engineering of the University of Aegean. His areas of expertise include engineering and management systems. Dr. Minis holds a Ph.D. from the University of Maryland in Mechanical Engineering and has held the positions of assistant and associate professor of Mechanical Engineering at the same University (1988–1997). He is conducting research in Systems for over 35 years and has edited 5 scientific volumes, authored 6 book chapters, 67 journal articles and over 55 articles in conference proceedings. Dr. Minis has been awarded the Best Paper Award in Database Management in the 1992 ASME CIE conference, is the recipient of the 1993 Earl E. Walker Outstanding Young Manufacturing Engineer Award from the Society of Manufacturing Engineers (SME), and has served as the Chairman of the National Council for Supply Chain, advising the Government of Greece (2016–2020).

Christina Arampantzi

Christina Arampantzi is a senior strategic supply chain network planning manager in Amazon. Christina holds a Ph.D in strategic supply chain design from the University of the Aegean where she is also a visiting lecturer. Dr. Arampantzi has published research papers in the area of supply chain network design in prestigious academic journals and has contributed to various research projects.

Georgios Dikas

George Dikas is a head of data science in Tesco PLC where he oversees the development and delivery of Data Science products in the areas of supply chain operations, forecasting and simulation. His research interest lies in the same areas and has published academic papers in highly ranked journals. Dr. Dikas was part of the team that was awarded the 2022 President’s Medal of the OR Society for the work on clearance pricing optimisation. Dr. Dikas holds a Ph.D. from the University of the Aegean in Supply Chain Management and Operations Research.