Computers & Industrial Engineering 50 (2006) 440–449

www.elsevier.com/locate/dsw

A hybrid optimization/simulation approach

for a distribution network design of 3PLS
a,1
Hyun Jeung Ko , Chang Seong Ko b, Taioun Kim b,*

a
Policy and Market Analysis Division, Korea Maritime Institute, 1027-4 Bangbae 3-Dong, Seocho-gu, Seoul 137-851, Republic of Korea
b
Department of Industrial Engineering, Kyungsung University, 110 Daeyeun-Dong, Nam-Gu, Busan 608-736, Republic of Korea

Received 3 February 2004; received in revised form 13 September 2004; accepted 24 March 2005
Available online 1 August 2006

Abstract

Third party logistics service providers (3PLs) are playing an increasing role in the management of supply chains. Espe-
cially 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 perfor-
mance competitive advantages. In this paper, we propose a hybrid optimization/simulation approach to design a distribu-
tion 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.
 2006 Published by Elsevier Ltd.

Keywords: Third party logistics; Distribution network; Hybrid optimization/simulation

1. Introduction

Today’s competitive business environment has resulted in increasing cooperation among individual compa-
nies as members of a supply chain. In other words, the success of a companies will depend on their ability to
achieve effective integration of worldwide organizational relationships within a supply chain (Drucker, 1998).
Moreover, consumers now require high levels of customer services for a variety of products with a short life
cycle. In such an environment, companies are under pressure with filling their customers’ orders, keeping the
deliveries of products up to speed, reducing inventory, and implementing reverse logistics. Consequently, the
individual companies of a supply chain are frequently faced with the challenges of restructuring their distri-
bution network with respect to global need and volatile market changes.

*
Corresponding author. Tel.: +82 51 620 4726; fax: +82 51 621 2454.
E-mail addresses: hjko@kmi.re.kr (H.J. Ko), csko@ks.ac.kr (C.S. Ko), twkim@ks.ac.kr (T. Kim).
1
Tel.: +82 02 2105 2740; fax: +82 02 2105 2759.

0360-8352/$ - see front matter  2006 Published by Elsevier Ltd.

doi:10.1016/j.cie.2005.03.006
 H.J. Ko et al. / Computers & Industrial Engineering 50 (2006) 440–449 441

The main advantage of outsourcing services to 3PLs is that these 3PLs allow companies to get into a new
business, a new market, or a reverse logistics program without interrupting forward flows; in addition, logis-
tics costs can be greatly reduced. These 3PLs have evolved first from offering a single logistics function like
warehousing or transportation and then moved on to managing integrated logistics functions such as ware-
house management, inventory management, transportation management etc. 3PLs are playing an increasing
role in the management of supply chains. The market for 3PLs was estimated at more than $45 billion in 1999
and is growing by nearly 18% annually and the primary growth in 3PLs markets has been in warehousing and
distribution. In addition, 74% of Fortune 500 companies used 3PLs’ services during 2000. These services
involve transportation management, freight payment, warehouse management, shipment tracking, and reverse
logistics. Virtually, all of the companies reported positive cost reduction results due to the avoidance of insur-
ance and employee costs and material handling equipment and technology purchases (Modern Material Han-
dling, 2000).
As mentioned above, these supply chains are under pressure to adapt to a changing market, to trim operating
costs, and to meet customer requirements. In general, 3PLs operate clients’ warehouses and transportation ser-
vices. More specifically, through the use of these warehouses, 3PLs provide inbound and outbound transpor-
tation, cross-docking, warehousing, freight consolidation and distribution as well as holding inventory for their
clients. Therefore, 3PLs must operate supply chains for a number of different clients. The requirements for the
clients as well as the clients’ customers change over time. As a result of the dynamic environment in which these
supply chains must operate, 3PLs must make a sequence of inter-related decisions over time. These decisions to
be made are opening/closing of facilities at various warehouses in the network, amounts of flow from a client to
a warehouse to a market, and capabilities of warehouses.
Instead of using an analytic model alone for a dynamic network design to capture such system dynamics
and uncertainties of a supply chain network, simulation approaches can provide an alternative way. Simula-
tion modeling uses virtual objects to represent real-world objects, and then tries to replicate each object’s
behavior and reaction to other objects. However, this modeling approach for the dynamic network design
requires high costs and time to build and to analyze the system since a large number of different location sce-
narios over multiple time periods should be considered. In order to overcome the modeling complexity and the
effort of time and costs, a hybrid procedure thus could be a useful idea, integrating an analytic and simulation
model. The hybrid approach was applied to a strategic mobility system problem in making decisions for the
size of transportation forces (Nolan & Sovergin, 1972). Moore, Warmke, and Gorban (1991) described a case
study, dealing with centralizing freight operations at Reynolds metals company. They proposed a mixed inte-
ger programming and simulation model to support central dispatch operations. Recently it was also applied to
the design of the vehicle distribution system at Volkswagen of America by Karabakal, Gunal, and Ritchie
(2000).
This paper will develop a hybrid optimization/simulation modeling approach for taking into account the
dynamics of clients and their uncertain volume of the products. The optimization model is used to determine
the dynamic distribution network structure through the genetic-based heuristic. 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 service time consists of random processing time
in warehouses and travel time from the warehouses to the markets. Finally, a recursive procedure is performed
in a manner that the simulation results are incorporated into the optimization model.

2. An optimization model

In the optimization model, we present a formulation for the multi-period, two-echelon, multi-commodity,
capacitated location model to consider the openings and closings of warehouses at the appropriate time. We
assume that the locations of clients’ markets and the potential warehouses are known. The demands of prod-
ucts also are assumed to known for the analytic model but follow some probability functions in the simulation
model to reflect uncertainty.
We denote the parameters by:

Ait = maximum production capacity of the open plant i in period t.

442 H.J. Ko et al. / Computers & Industrial Engineering 50 (2006) 440–449

Bpit = 1 if plant i produces product p in period t, otherwise 0.

Cjtr = maximum space of the warehouse j in period t for iteration r.
bp = unit storage space by product p.
dpkt = demand of product p at customer k in period t.
oj = fixed operating cost for warehouse j.
sj = setup cost for installing warehouse j.
vfpijkt = unit variable cost of serving demand of product p at customer k from plant i and warehouse j in
period t, including transportation and handling cost.
The decision variables of the problem are:
X fpijkt = amount of demand of product p at customer k served from plant i and warehouse j in period t.
Zjt = 1 if warehouse j is open in period t; otherwise 0.
The overall mathematical model is as follows:
" #
X X X XXXX f f
Minimize oj Z jt þ sj Z jt ð1  Z jt1 Þ þ vpijkt X pijkt ð1Þ
t2T j2J j2J and tP2 p2P i2I j2J k2K
XX
Subject to X fpijkt 6 Ait Bpit 8i 2 I; p 2 P; t2T ð2Þ
j2J k2K
XX
X fpijkt P d pkt 8p 2 P ; k 2 K; t2T ð3Þ
i2I j2J
XX
bp X fpijk 6 C jt Z jt 8j 2 J ; k 2 K; t2T ð4Þ
p2P i2I

X fpijkt P 0; p2P 8i 2 I; 8j 2 J ; 8k 2 K; t2T ð5Þ

Z jt 2 ð0; 1Þ 8j 2 J ; t2T ð6Þ
This model has the objective of minimizing the total cost that consists of the costs of fixed operating, open-
ing, and expansion of warehouses, the volume dependent expansion costs, and the transportation costs. Con-
straint (2) assures that the clients produce different products at different locations with limited capacities.
Constraint (3) guarantees that the demands of clients’ markets are satisfied. Constraint (4) is the capacity lim-
itations on warehouses. Constraint (5) preserves the non-negativity restrictions on the decision variables, while
constraint (6) ensures the binary integrality of decision variables. The decision to be made in dynamic ware-
house location problems is to select the time for installing warehouses on the network over the planning hori-
zon. However, obtaining the exact solutions of dynamic facility location problems in polynomial time is not
possible since a location problem belonged to the class of NP-hard problems (Krarup & Pruzan, 1983). Thus,
heuristic approaches in most cases have been used in order to solve those models. The above model is solved
by using a genetic algorithm (Gen, Choi, & Tsujimura, 1999; Jaramillo, Bhadury, & Batta, 2002), which is
based on analogy with biology where a set of solutions evolves through natural selection and natural genetics.

3. The recursive optimization/simulation procedure

The recursive optimization/simulation procedure is applied to solve a distribution network for 3PLs. The
optimization model determines a distribution network over time and is solved using a genetic algorithm.

3.1. Genetic algorithm

GA is referred to as a stochastic solution search procedure that is designed to solve combinatorial problems
using the concept of evolutionary computation imitating the natural selection and biological reproduction of
animal species (Goldberg, 1989; Gen & Cheng, 2000). In the past, GA has been successfully applied to classical
combinatorial problems such as capacitated plant location (Gen et al., 1999), fixed charge location (Jaramillo
et al., 2002), minimum spanning tree (Zhou & Gen, 1999), network design (Palmer & Kershenbaum, 1995),
and warehouse allocation (Zhou, Min, & Gen, 2003). Prior to the application of GA, we need to design
 H.J. Ko et al. / Computers & Industrial Engineering 50 (2006) 440–449 443

the genetic representation (or chromosome) of the candidate solutions. Herein, a chromosome represents each
solution in the initial solution set of solutions (population). The size of the population depends on the size and
the nature of the problem at hand. The chromosome evolves through a crossover operator and a mutation
operator to produce children, improving on the current set of solutions. The chromosomes in the population
are then evaluated through a fitness function and the less fit chromosomes are replaced with better children.
The processes of crossover, evaluation and selection are repeated for a predetermined number of iterations
called generations, usually up to the point where the system ceases to improve or the population has converged
to a few well performing chromosomes.

3.1.1. Encoding
The initial step is to design a suitable chromosome. This is a key issue for a successful implementation
because it applies probabilistic transition rule on each chromosome to create a new population of chromo-
somes. To achieve this, each chromosome developed in this study is based on N · M dimensional array con-
sisting of only binary decision variables, where N is the total number of time periods, and M is the total
number of candidate warehouses. For example, the representation of a chromosome is illustrated in Fig. 1.
It has six warehouses and two time periods. Each facility has one gene, representing opening (=1) or closing
(=0) decisions with binary strings. Then, based on set of the binary variables, the continuous variables such as
the flows of each customer demand and the total throughput capacity of each warehouse are obtained by using
a simplex method for a transportation problem as a sub-procedure within the proposed genetic procedure.

3.1.2. Cloning operator

The cloning operator involves keeping the best solutions. In the proposed GA, the procedure works in such
a way that it copies 20% of the current best chromosomes to a new population.

3.1.3. Parent selection operator

The parent selection operator is an important process that directs a GA search toward promising regions in
a search space. Two parents are selected from the solutions of a particular generation by selection methods
that assign reproduction opportunities to each individual parent in the population. For this experimentation,
we used a binary tournament selection method that began by forming two teams of chromosomes (Chu &
Beasley, 1997). Each team consists of two chromosomes randomly drawn from the current population. The
two best chromosomes that are taken from one of the two teams are chosen for crossover operations. As such,
two offsprings are generated and enter into a new population.

3.1.4. Crossover operator

The crossover operator generates new children by combining information contained in the chromosomes of
the parents so that new chromosomes will have the best parts of the parents’ chromosomes. Herein, we applied
the one-point crossover where the location of the crossover points is randomly selected in opening/closing
decisions of facilities in the initial time period (T = 1) and then swap the blocks of the two parents’ strings
to produce two children.

3.1.5. Mutation operator

After recombination, some children undergo mutation. Mutation operates by inverting each bit in the
solution with some small probability, usually from 0% to 10%. The rationale is to provide a small amount

Warehouses
1 2 3 4 5 6
T=1 1 0 0 0 1 0

T=2 1 1 0 1 0 0

Fig. 1. A genetic representation scheme.

444 H.J. Ko et al. / Computers & Industrial Engineering 50 (2006) 440–449

of randomness, and to prevent solutions from being trapped at a local optimum. The type of mutation varies
depending on the encoding as well as the crossover. In the proposed GA, the mutation operator first randomly
selects a time period and a bit value of opening/closing decision variables on a chromosome. Then, flips a bit
value from 0 to 1, or from 1 to 0. Hence, a good level of diversity in each generation is achieved.

3.1.6. Fitness function

Decoding the chromosome generates a candidate solution and its fitness value based on the fitness function.
The fitness function is formed by adding a penalty function to the original objective function. To elaborate,
the opening, operating costs of warehouses are calculated directly from a chromosome, but the transportation
costs are calculated from a sub-algorithm that is a simplex method for a transshipment problem. The sub-al-
gorithm is coded in C++ and combined in the overall GA solution procedure. Finally, the penalty function is
needed when some candidate solutions in a population turn out to be infeasible, exceeding the capacity limit of
some warehouses. Whenever each facility in any time period exceeds the capacity limit, the penalty value is
assessed and is subsequently added to the original objective function. A penalty value is considerably larger
than any possible objective value corresponding to the current population of individuals. The penalty function
is mathematically expressed as follows:
XX
Penalty function ¼ pv  f ðX fpijkt ; C jt ; Z jt Þ
j2J t2T

wherepv = penalty value

8 PP
<1 if X fpijk > C jt Z jt
f ðX fpijk ; C jt ; Z jt Þ ¼ p2P i2I
:
0 otherwise

3.1.7. An overall GA solution procedure

Once the representation scheme is selected, the overall algorithm of the proposed GA can be described as
follows:

(1) Read the required data and generate an initial population based on population size, in which each chro-
mosome is a one-dimensional array representing decision values. In each chromosome, first the opening/
closing decision of any facility is randomly made using binary value (0 or 1). Second, if a collection point
is open, a value of three genes for the collection period is randomly determined using binary values; If an
initial collection point is closed, all three genes are zero.
(2) Set the generation zero and evaluate the fitness function of each chromosome in a population. The fitness
function is the sum of the objective function of the original problem and the penalty function.
(3) Create a new population by repeating generation operations (cloning, parent selection, crossover, and
mutation) until the new population is complete. The combined tournament and elitism method is used
for selecting the parent. Two-point crossover and random mutation are used for positioning a
chromosome.
(4) Replace new offspring in a new population.
(5) Stop the iteration if the end condition is satisfied; otherwise go to the next generation.

Herein, the overall pseudo-code procedure for the proposed heuristic is outlined:

Read_Data();
Initialize_Population();
While (not terminate condition) do
Evaluate_Fitnessfunction(call TRANSSHIP() {
Start_BFS();
while(optimal condition)do
Leaving_Var();
 H.J. Ko et al. / Computers & Industrial Engineering 50 (2006) 440–449 445

Entering_var();
endwhile})
Select_Parents();
Crossover();
Mutation();
Endwhile
Generate_Outputs;

3.2. Simulation model

In the next step, the simulation model is used to evaluate the capacities of warehouses as well as the clients’
assignments to a warehouse based on average service time. The simulation level of detail varies depending on
the problem situation at hand. Especially in this paper, the average service time simply consists of order-pick-
ing time and travel time from a warehouse to a market. The model is built using the ARENA 3.0 simulation
software package and works as follows. Each market demand is generated every day for 5 days using Arrive
modules in each time period (5 days a week, 8 h a day). When each entity is created, the two attributes of prod-
uct type and travel time are assigned. Next, these entities are sent to a Server module representing a ware-
house, where the delay for the order-picking time is enforced. The assignment of entities to the warehouse
is based on the outcome of optimization model. Then, those entities are sent to the second Server module
where the logic of the delay for the transportation time of each entity is performed. To do this, the processing
time of the second Server module is determined according to the attribute of travel time of each entity. Besides,
its capacity has to set as large as possible so that each entity should be transported without any queue. Finally,
these entities are disposed using Depart modules.
The inputs to this model are the locations of open warehouses, the assignment of clients’ products to the
warehouses, the probability distributions for the demands of clients’ markets, and random order-picking and
travel time. By running a batch of simulation model, the best throughput capabilities of the open warehouses
are examined by measuring the average service time at each warehouse. Thus, the service time devotes to
define appropriate throughput capacity constraints to be incorporated into subsequent optimization and
the constraints will be:
 
S jtr  L
C jt;rþ1 ¼ C jtr dþ ð7Þ
L

where Sjtr is the average service time at warehouse j in period t for iteration r; L is the maximum service time;
and d is a adjust factor (P1). This formula may vary depending on problem situations it belongs to, and in this
paper we simply made it in terms of random order-picking and travel time. In addition, the other constraints
may be added if the service times at all open warehouses are greater than L. In other words, there are not
enough overall capacities on the network in terms of the current service level. Such constraints are made
through the following formulation:
X
Z nt P 1; t 2 T ð8Þ
n2J

where n is the warehouse index which is not currently open. Finally, if the simulation outputs satisfy the re-
quired performances, the procedure is terminated; otherwise, the design parameters and constraints are mod-
ified and then fed into the optimization model. This procedure is repeated until a satisfactory set of parameters
is obtained. Fig. 2 shows the graphical framework of the procedure.

4. An example problem

In order to apply the proposed approach, we consider a problem where a 3PL provides logistics services for
three clients (c1, c2, and c3) and a total of 90 markets (m1, m2, . . ., m90). The 10 potential sites of warehouses
are considered (W1, W2, . . ., W10). The capacity of the warehouse represents the storage capability as well as
446 H.J. Ko et al. / Computers & Industrial Engineering 50 (2006) 440–449

aggragated demand cost parameters

Optimization

Satisfy performance
Yes STOP
measures ?

No

Simulation

daily demand transportation time

order- picking time

Fig. 2. The framework of hybrid procedure.

the performance of processing an order. Each candidate warehouse initially has the same capacity of handling
5000 units. The demands of three products (p1, p2, and p3) are assumed to be normally distributed with mean
and variance of 10% of the mean in each week; N(100,102) for p1 in markets (m1, m2, . . ., m30); N(200,202) for
p2 in markets (m31, m32, . . ., m60); and N(300, 302) for p3 in markets (m61, m62, . . ., m90). The order-picking
time is assumed to be triangularly distributed as TRIA(30, 60, 90) minutes, and travel time is assumed to be
normally distributed with mean and variance of the 10% of the mean based on distance between warehouse
and market. In addition, the maximum service time is set as 360 min so that each market can get the service
within 6 h each day.
In the first step, a distribution network over the five periods was determined with respect to the aggregated
demand. The optimization model had 300 continuous variables, 50 binary variables and 675 constraints and
solved by the proposed genetic algorithm-based heuristic. Through the extensive experiments, the appropriate
parameters were set in the following manner: population size = 300, generation size = 100, crossover
rate = 80%, and mutation rate = 3%. The solution took about one hour of computation time on the super-
computer equipped with 112 parallel processors with 28 GB of RAM. Next, based on the preliminary config-
uration, a simulation model was applied to examine the appropriated capacities of warehouses with respect to
service time. The simulation run was executed on the personal computer equipped Pentium III process with
256 MB of RAM. It took about 2 min.
From the optimization model, Fig. 3 shows the convergence of fitness values, and the best one is the value
of $14,270,600. Table 1 shows the schedule of opening warehouses over time. As the total demand is increased,
W1 and W6 were open at the beginning of the first period, W10 at the beginning of the third period, and W7 at
the beginning of the fifth period. Table 2 shows allocating the customers to opened warehouses. Based on the
outcomes of the optimization model, the simulation model is run ten times in order to measure average service
time. The average service times are summarized in Table 3. However, the current network structure cannot
satisfy the ensured delivery within 360 min. The results show that opening more warehouses may be required
at period 1 and period 2 as well as capacity adjustments from period 1 to period 4. So, the second iteration
should be applied.
In the second iteration, the capacity constraints, Cjtr, are calculated by (7) and the results are presented in
Table 4. Then, the following two constraints of opening additional warehouses are also added:
 H.J. Ko et al. / Computers & Industrial Engineering 50 (2006) 440–449 447

16,000,000

15,500,000

15,000,000

cost($) 14,500,000

14,000,000

13,500,000
1
8
15
22
29
36
43
50
57
64
71
78
85
92
99
generation

Fig. 3. The convergence of fitness values.

Table 1
Capacity solution (units)
W1 W2 W3 W4 W5 W6 W7 W8 W9 W10
1 2400 0 0 0 0 3600 0 0 0 0
2 4000 0 0 0 0 5000 0 0 0 0
3 3400 0 0 0 0 5000 0 0 0 3600
4 5000 0 0 0 0 5000 0 0 0 5000
5 5000 0 0 0 0 5000 3000 0 0 5000

Table 2
The assignments of clients’ markets to open warehouses
Period W1
1 m4;5;9;10;31;32;33;
34;35;36;38;39;m40
2 m4;5;9;10;11;14;15;
31;32;33;34;35;36;38;39;
40;41;42;43;44,m45
3 m4;5;9;10;11;14;15;
16;18;19;32;34;35;
36;37;38;40;44;49;m50
4 m4;5;9;10;11;15;16;
17;18;19;20;24;32;34;
35;36;37;38;40;44;49;50;
51;53;55;66;80;84;m85
5 m5;9;10;11;15;24;26;30;
32;34;35;36;37;38;
40;44;49;50;51;53;55;57;
58;66;80;84;86;m90
W6 W7 W10
m1;2;3;6;7;8;61;62;63;
64;65;66;67;68;69;m70
m1;2;3;13;6;7;8;12;61;62;63;64;
65;66;7;68,69;70 71;72;73;74;m75
m1;2;3;6;7;8;12;13;17;20;61;62;63; m31;33;39;41;42;43;44;
64;66;67; 68;69;70;72;74;75;78;m79 45;46;47;48;65;71;73;76;77;m80
m1;3;6;7;8;12;13;25;61;62;63;67; m2;14;19;21;22;23;31;
69;70;72;74;75 78;79;80;82;m83 33;39;41;42;43;44;45;
46;47;48;52;54;64;68;
65;71;73;76;77;m80
m2;3;6;7;13;21;23;61;62;63;64;67; m1;4;8;12;16;17;18;20; m14;19;22;27;31;33;39;41;42;43;44;
69;70;72;75;78;79;81;m82, 25;28;29;74;83;85 87;m88 45;46;47;48;52;59;60;71;76;77;m89

Table 3
Average service time (minute)
Period W1 W2 W3 W4 W5 W6 W7 W8 W9 W10
1 369 0 0 0 0 362 0 0 0 0
2 371 0 0 0 0 367 0 0 0 0
3 363 0 0 0 0 362 0 0 0 357
4 369 0 0 0 0 359 0 0 0 364
5 357 0 0 0 0 360 348 0 0 357
448 H.J. Ko et al. / Computers & Industrial Engineering 50 (2006) 440–449

Table 4
Adjusted capacities (units)
W1 W2 W3 W4 W5 W6 W7 W8 W9 W10
1 2085 0 0 0 0 3496 0 0 0 0
2 3398 0 0 0 0 4479 0 0 0 0
3 3261 0 0 0 0 4756 0 0 0 3856
4 4256 0 0 0 0 5089 0 0 0 4774
5 5243 0 0 0 0 4984 3498 0 0 5208

Z 21 þ Z 31 þ Z 41 þ Z 51 þ Z 71 þ Z 81 þ Z 91 þ Z 101 P 1
Z 22 þ Z 32 þ Z 42 þ Z 52 þ Z 72 þ Z 82 þ Z 92 þ Z 102 P 1
Thus, the modified Cjtr and two additional constraints are incorporated into the second optimization, and
then the modified version is solved again. The results are summarized in Tables 5 and 6.
Finally, the acceptable results are obtained after three iterations and summarized in Tables 7 and 8. These
outcomes provide the detail planning of material handling equipments, human resources, vehicles, etc. for the
3PL.
Table 5
Capacity solution (units)
W1 W2 W3 W4 W5 W6 W7 W8 W9 W10
1 2093 0 0 0 0 3040 0 0 0 991
2 2569 0 0 0 0 4225 0 0 0 2453
3 3034 0 0 0 0 4543 0 0 0 4431
4 4256 0 0 0 0 5089 0 0 0 4774
5 5243 0 0 0 0 4984 3498 0 0 5208

Table 6
Average service time (minute)
W1 W2 W3 W4 W5 W6 W7 W8 W9 W10
1 360 0 0 0 0 359 0 0 0 353
2 358 0 0 0 0 361 0 0 0 352
3 365 0 0 0 0 363 0 0 0 352
4 369 0 0 0 0 359 0 0 0 364
5 357 0 0 0 0 360 348 0 0 357

Table 7
Capacity solution (units)
W1 W2 W3 W4 W5 W6 W7 W8 W9 W10
1 2157 0 0 0 0 3284 0 0 0 934
2 2556 0 0 0 0 4406 0 0 0 2303
3 2483 0 0 0 0 4005 2467 0 0 3442
4 2999 0 0 0 0 4954 3790 0 0 3724
5 5235 0 0 0 0 5369 3069 0 0 5479

Table 8
Average service time (minute)
W1 W2 W3 W4 W5 W6 W7 W8 W9 W10
1 360 0 0 0 0 359 0 0 0 353
2 358 0 0 0 0 360 0 0 0 352
3 351 0 0 0 0 357 348 0 0 347
4 350 0 0 0 0 356 348 0 0 347
5 357 0 0 0 0 360 348 0 0 357
 H.J. Ko et al. / Computers & Industrial Engineering 50 (2006) 440–449 449

5. Concluding remarks

The 3PLs’ operating environment has many dynamic elements with respect to various clients. As a result of
the dynamic environment in which these supply chains must operate, 3PLs must make a sequence of inter-re-
lated decisions over time for their distribution networks. Thus, this paper proposed a hybrid optimization/sim-
ulation modeling approach for the design of a distribution network by taking into account the dynamics of
clients and service time at each warehouse. The optimization model was used to determine the dynamic dis-
tribution network structure through the genetic-based heuristic. Subsequently, the simulation model was
applied to determine the best capabilities of warehouses based on level of service time. A recursive procedure
was performed in a manner that the simulation results were incorporated into the optimization model.

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