AHP integrated MILP approach to minimize transportation cost to prioritize distribution requirements

Abstract

Customer satisfaction can be considered as the most important factor for any business as it is tightly linked to revenue and determines the company’s growth and the sustainability. Further it is the leading indicator of customer repurchases and loyalty. Final outcome of the effective supply chain (SC) management is to make the customer loyal and if failed it would result to transfer the customer towards the competitor. Understanding this importance, research in supply chain management (SCM) has grown significantly in recent years. Many organizations have identified that customer satisfaction (CS) and the SC cost are linked and it is impossible to optimize both at the same time. Many studies have been done under different situations to minimize transportation cost (TC) as it ultimately reduces a tremendous amount of SC cost. The need for a reliable approach to optimize customer satisfaction while minimizing the transportation cost has been raised in many occasions as improving customer satisfaction is a goal sought by many businesses in the logistic industry. This requirement becomes critical when the distributor has to select a set of customer orders to be delivered when the supply is less than the demand. Therefore, the objective of this study was to develop a model to find a way to optimally satisfy the customer orders, while minimizing the transportation cost. As a result, a customer focused approach is presented by incorporating Analytic Hierarchy Process (AHP) and then employing a mixed integer linear programming (MILP) model to find the optimal solution. The proposed model addresses customer satisfaction while minimizing the transportation costs