Determining the Number and Location of Warehouses to Minimize Logistics Costs of Business to Consumer (B2C) Distribution

¹ Department of Industrial Engineering, Faculty of Industrial Technology, Petra Christian University, Jl. Siwalankerto No.121−131, Surabaya 60236, Indonesia
² Department of Management, Faculty of Economics and Business, Sam Ratulangi University, Bahu Link 8, Bahu, Manado 95115, Indonesia

^* Corresponding author: mantapa@petra.ac.id

Abstract

The article discusses a case study at a company that works on Fast Moving Consumer Goods (FMCG) section using B2B distribution system, and is conducting a market test for its new alternative tobacco products using B2C distribution system. The purpose of this study is to determine both number and location of warehouses that provides a minimum total logistics costs for the B2C process, where the company is currently still using company-owned B2B warehouses. Determination of the number and location of these warehouses is performed using Agglomerative Hierarchical Clustering where grouping is based on the shortest distance and is done using Evolutionary Solver. Centre of Gravity is also used to determine the location of the warehouses. Iteration will be carried out to obtain the number of warehouses that provide minimal total cost. The result of the modelling shows that the optimal number of warehouses is six and each warehouse will have their own market division.