Abstract

The design of distribution networks that simultaneously consider location and inventory decisions seeks to balance costs and product availability. The most commonly observed measure of product availability in prac- tical settings is the fill-rate service level. However, the optimal design of a distribution network that considers the fill rate to control shortages of fast-moving consumer goods (FMCG) is considered intractable and has only been addressed by heuristic methods. This paper addresses the optimal design of a distribution network for FMCG able to provide high fill-rate service level under a continuous review (r,Q) policy. Considering the exact formulation for the provided fill rate, we formulated a joint location–inventory model with fill-rate service level constraints as a convex mixed integer nonlinear problem for which a novel decomposition-based outer approximation algorithm is proposed. Numerical experiments have shown that our solution approach provides good-quality solutions that are on average 0.15% and, at worst, 2.2% from the optimal solution.