Continuous Location-Allocation Model for Retail Distribution Network Design Combining Inventory and Routing Aspects

The paper presents continuous and both capacitated/uncapacitated location-allocation problem (LAP) concerning location of distribution centers (DCs) and their allocation to groups of customers (stores) served by a retail physical distribution network. The primary purpose is to develop a model of the problem that is directly applicable to logistics practice and allows for optimization of a physical distribution network structure taking into account: different vehicle types/transportation modes, an approximation of road distances, an inventory turnover, the square root law (SRL) for inventory, and discrete capacity of DCs including flow and storage limitations. For the LAP is a strategic management problem strongly influenced by operational conditions (inventory, routing) of distribution networks the proposed model combines both aspects, but it not integrates explicitly operational decisions as variables. The motivation for this is discussed. The problem/model is solved using a professional spreadsheet compatible solver. The obtained principle results show that the proposed model gives both reasonable and being in accordance with the literature and practice solutions of the LAP. The major conclusion is that the model can be applied to logistics practice to design optimal structures of retail distribution networks which is proved by its successful implementation in a real-life retail company (case study)