A Decision Model of Field Depot Location Based on the Centrobaric Method and Analytic Hierarchy Process ( AHP )

Warehouse location is one of the most important logistics activities. The selection of the most effective warehousing mode has become a strategic study. This paper will introduce the factors influencing the decision process in selecting the warehouse locations based on gravity model approach and analytic hierarchy process. In the end, the author will summarize the methods and the results.


Distribution of Sales location
To the retailing warehouse, its major customers are supermarkets and retailing stores.These customers are usually located in metropolitan cities with large population.To enhance the level of service while lowering the distribution transportation cost, the warehouses are normally built near the customers in the areas of suburbs

Transportation
The warehouse locations have to take into consideration the current and future availability of transportation as well as the transportation development in the neighborhood areas.It is best to select the place near the highways, national arteries, and express ways.Also the location could be near the train station and harbor if the transportation is carried out by rail or ship.

Land
The selection of land must be conducted in a way that complies to the regulations of rules set by municipal or other-level government.It is usually a good choice to locate the land in major distribution centers or economic development zones.If applicable, the decision of the location should be made based on the planning of these centers or zones.In addition, the potential increase in real estate value could also play a part in the selection process.

Natural environment
It is important to acquire the knowledge of the natural environment in order to reduce the risks involved in constructing the warehouse.For example, natural conditions could be the humidity, saltiness, precipitation, typhoon, earthquake, and river.

Policy environment
If there is supporting policies available from the government, the logistics will have very favorable condition to develop.These policies could include ones such as the favorable incentives for corporate (the supply of land and reduction of tax), municipal infrastructure planning (the development of real estate, and road construction), the policies of promoting certain local industries.Especially tax reduction could mean direct reduction in the operational expenses.

The Application of Centrobaric Method
We assume that the ultimate goal is to reduce the cost of distributing the goods to their different destination, the formula is: In the Coordinate Plane, the to-be-determined location of the warehouse is (X0, Y0), then we have Note di can be calculated from the following formula, The process of calculating is as follows: 1. Determine the coordinates of individual destinations with a certain set of volumes and the rates of transportation; 2.Without the factor of distance, the initial destination point would be decided by the following Centrobaric Method ViRiXii ViRi (4)

ViRi
(5) 3.From formula 3, d i could be derived from step 2; 4.With d i known, coordinate (X 0, Y 0) can be calculated from formula (1)and( 2) 5.With the revised (X 0 ,Y 0) , a new round of calculation 6.Repeat step 4 and 5 until variances of (X 0, Y 0) through the iterative process are within a acceptable range.
Assume the two choices of destination points A and B are known with related parameters, the calculation process could be finished through the Excel template in the appendix.To make the coordinates in the same Quadrant, we assume the warehouse location is (0,30).The result of the optimal coordinate is (12.43288,25.13579),please refer to the appendix for the result.This is in line with the choice A. Therefore, A should be the location for warehouse.

Determination of locations with AHP method
The first step is to set goals, namely determining point A and B. Then based on the experience of the decision maker, relevant factors influencing the goal should be identified out.These factors will be the listed at the second layer below the goal.Now there is a need to determine the weights (priorities) of the 5 elements.Priorities will be compared in pairs, AHP will compare two of the 5 factors to assess the priorities.Consequently, every element will have its own weight relative to each other.Then the next step will analyze the overall results, arrive at a comprehensive weight, and assign each factor its degree of importance.
Insert Figure 1 here Compare 5 elements in the second layer according to their degree of importance, a comparative matrix could be established.
Insert Table 1 here International Journal of Business and Management July, 2009 73 Insert Table 2 here Insert Table 3 here Insert Table 4 here In order to make judgment on consistency of the comparison results, it is needed to check the coefficient RI from the table Average Random Consistency Insert Table 5 here The consistency index is found 0 through calculation.Therefore the result is very satisfactory in terms of consistency.
The Weights of the five indexes: From the above, A scores higher than B does.Therefore A should be the best choice.Both approaches produce the same results that indicate A the best location.Therefore, the conclusion is A should be the place to build the warehouse.
As the important node in the network of logistics, the location selection is very important.We can not rely entirely on the complex mathematical model or on experience alone.Only by combining the two together, we can make reasonably sound decision in real life.

Table 1 .
The Comparison of Each Factor in Selecting Warehouse a Location

Table 2 .
The Comparison of Each Factor in Selecting Warehouse B Location