Optimization of e-commerce distribution center location

Abstract

Since the COVID-19 pandemic hit last year, countries locked their borders. Thus, international shipping deteriorates drastically. Simultaneously, social distancing increased the need for immediate online consumption and fast home delivery. In the non-digital world, products still need to be shipped to their destination using trucks, trains, airplanes, and ships. Simultaneously, requirements for volumes of goods, transport costs, external limiting factors, etc., must be precisely defined. The article aims to find the optimal location selection solution based on the created mathematical model of the Modified Steiner-Weber Problem with restrictive conditions. The model allows for the central warehouse's optimal location and minimizes distribution costs from the central warehouse to sub-warehouses/branches located in individual EU countries. The mathematical model has been applied to a case study of a selected e-commerce dealing, which has established branches in capital cities but does not have an established central warehouse. Systematization of literature sources and approaches to solving the problem of e-commerce distribution center location showed that 86% of the studied companies plan to use on-demand warehousing in the next three to five years. Therefore, the need for warehousing would be preserved. The authors noted that they do not necessarily need to have it in-house. Consequently, fulfillment centers and warehouses would likely continue to be a significant component in the future logistics system. This research would like to stress how important the management of the effective optimization of e-commerce distribution center location is and how to achieve it. The success of Amazon in the US, Europe, and Alibaba in China has genuinely redefined consumer expectations. With the emergence of services like Amazon Prime, consumers now expect same-day delivery. The solution enabling this evolution has been a mix of manufacturing where the production costs are optimal, just-in-time shipping, highly automated fulfillment centers, and mobile connectivity growth. The proposed model results showed that the best location for a central location and storage center concerning the e-commerce environment, including minimum annual transport costs, is near Bristol in the United Kingdom. Eighty-six percent of the companies in the study plan to use on-demand warehousing in the next three to five years, and the solution enabling this evolution has been a combination of manufacturing where the production costs are optimal, just-in-time shipping, highly automated fulfillment centers, and, to a growing extent, mobile connectivity.