Designing Distribution Networks Taking into Account Aspects of Postponement

Designing the physical distribution network in a supply chain is an important strategic planning problem with undeniable implications towards tactical and operational planning success. In this paper we consider a distribution network made up of four tiers, involving factories, central warehouses, regional warehouses as well as customer zones. The objective is to select the optimal numbers and locations of central and regional warehouses such that all customer demands are met at minimum total costs of the network. As an extension of existing approaches, certain postponement options as well as different techniques for shipping and operating the goods in the facilities are also taken into account. By means of a mixed integer programming model it is demonstrated that the resulting formulation can be applied to solve realistic problem instances with commercially available mathematical programming software.