Decision support for defining the optimal logistical structure for a company by integrating linear optimisation and the analytic hierarchy process

ABSTRACT The identification of the most cost/service-effective logistic structure for a company is one of the most essential elements of logistics strategy. The design of logistic structure consists of defining the number, size and location of facilities, the assignment of products to facilities and markets, and the selection of transport modes and routes. One of the most widely used methods for logistic network design is linear optimisation. However, the method is cost—oriented usually incorporating only delivery time of the numerous customer service elements. In the paper, we present an approach to logistics network design where linear optimisation is supported by an application of the Analytic Hierarchy Process. The qualitative characteristics of the alternative network elements are analysed using AHP, a cost/service-ratio is calculated for each element, and the optimisation is based on the cost/service-ratio resulting to the most cost/service- effective logistic structure.