A hybrid optimization/simulation approach for a distribution network design of 3PLS

Third party logistics service providers (3PLs) are playing an increasing role in the management of supply chains. Especially in warehousing and transportation services, a number of clients expect for 3PLs to improve lead times, fill rates, inventory levels, etc. Hence, these 3PLs are under pressure to meet various clients’ service requirements in a dynamic and uncertain business environment. As a result, 3PLs should maintain an efficient distribution system of high performance competitive advantages. In this paper, we propose a hybrid optimization/simulation approach to design a distribution network for 3PLs in consideration of the performance of the warehouses. The optimization model uses a genetic algorithm to determine dynamic distribution network structures. Subsequently, the simulation model is applied to capture the uncertainty in clients’ demands, order-picking time, and travel time for the capacity plans of the warehouses based on service time. The approach is applied to an example problem for examining its validity.