A two-level distribution network design based on inventory cost optimization

In this paper, we address more complex distribution network design problems, which involve facility location, transportation and inventory decisions. The main contribution of this paper is the formulation of a multi-echelon distribution network design problem (MEDND) which made up of competitive and non-competitive facilities, and the incorporation of tactical and operational decisions into the facility location problem solution scheme. We present a non-linear mixed-integer model and a heuristic solution approach, based on Lagrangian relaxation (LR) and the sub-gradient method. In a number application we found that the potential cost reduction, compared to the traditional approach, increases when the holding and service level are higher, especially when the severe competitive exists in the market.