Department of Industrial Engineering and Management Sciences

In designing a supply chain, firms are often faced with the competing demands of improved customer service and reduced cost. We develop a model that incorporates fixed distribution center location costs, working and safety stock inventory costs at the distribution centers, fixed and variable transport costs from a plant to the distribution centers and delivery costs to customers. Service is measured by the fraction of all demands that are located within an exogenously specified service standard. The nonlinear model simultaneously determines distribution center locations, the assignment of demands to distribution centers and the inventory policy at the distribution centers to optimize the cost and service objectives. We use the weighting method to find all supported points on the tradeoff curve. Our results suggest that significant service improvements can be achieved relative to the minimum cost solution at a relatively incremental cost.