A customer oriented approach to warehouse network evaluation and design

Cost or profit based optimisation with capacity restrictions is the most widely used method for distribution network design. This approach is based on production or company oriented logistics thinking. However, in the present competitive business environment, a more customer driven and holistic approach to supply chain management is required. In this paper, the focus is on warehouse network evaluation and design. The aim is to present a customer oriented approach to the evaluation and selection of alternative warehouse operators. The Analytic Hierarchy Process (AHP) is used for analysing the customer-specific requirements for logistics service and for evaluating the alternative warehouse operators. The AHP-based analysis results in a customer-specific priority for each alternative warehouse operator. This priority describes how well a certain warehouse operator is expected to satisfy a certain customer's performance requirements. The priorities are then entered to a Mixed Integer Linear Programming (MILP) -model which is used for maximising the overall service performance of the warehouse network under relevant restrictions. Thus, the warehouse network can be designed based on multiple quantitative and qualitative criteria instead of just costs or profits alone. (C) 1999 Elsevier Science B.V. All rights reserved.