Locating distribution/service centers based on multi objective decision making using set covering and proximity to stock market

Abstract

In the present competitive world, facility location is an important aspect of the supply chain (sc) optimization. It involves selecting specific locations for facility construction and allocation of the distribution channel among different SC levels. In fact, it is a strategic issue which directly affects many operational/tactical decisions. Besides the accessibility, which results in customer satisfaction, the present paper optimizes the establishment costs of a number of distribution channels by considering their proximity to the stock market of the goods they distribute, and proposes mathematical models for two objective functions using the set covering problem. Then, two objective functions are proposed into one through the ε-constraint method and solved by the metaheuristic Genetic Algorithm (GA). To test the resulted model, a smaller scale problem is solved. Results from running the algorithm with different ε-values show that, on average, a 10% increase in ε, which increases the value of the second objective function - distance covered by customers will cause a 2% decrease in the value of the first objective function including the costs of establishing distribution centers). The repeatability and solution convergence of the two-objective model presented by the GA are other results obtained in this study.

Keywords

• Marketing mix
• Set covering problem
• GA
• Customer satisfaction
• Facility location
• Multi objective Optimization