Optimally locating distribution centers

Abstract

In this project, we focus on outbound logistics, wherein shipping is done by road, through Distribution Centers after product aggregation at a central warehouse. We find the optimal location of DCs to be used for distribution across India, for arange of product categories based on their value density and demand. As part of the project we identified the optimal locations of Distribution centers in India, fora range of goods groceries like wheat and sugar, packaged FMCG products, and consumer electronics. To the existing main components of logistics costs in India inventory, transportation and warehousing costs; we introduced a fourth component of cost Loss of Revenue to delay in servicing. This cost is incurred on the secondary leg of transport from the DC to the demand point, when demand at dp is served from a DC not located nearby. We developed a 2-step algorithm to compute the optimal solution on the nonlinear problem. We first compute optimal paths to supply each demand point from the warehouse. On this model, we devised a variant of dynamic programming that can be applied to the tree structure, to compute the optimal location of DCs along each sourcing path.