IIMB Management Review (2018) 30, 343–356

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Selection of warehouse location for a global

supply chain: A case study
D1X XRajesh Kr SinghDa,
2X X *, D3X XNikhil ChaudharyDb4X X , D5X XNikhil SaxenaDb6X X

a
Management Development Institute (MDI), Gurgaon, India
b
Delhi Technological University, Delhi, India

KEYWORDS Abstract This study is based on an India case, where an auto components manufacturing organi-
Global supply chain; sation is planning to expand its business in Iran. Recently, the Government of Iran has announced
Warehouse location incentives for industrial activities in Special Economic Zones (SEZs) and Free Trade Zones (FTZs).
selection; The purpose of this study is to illustrate the selection of most optimal location for a warehouse
Multi criteria decision in various SEZs and FTZs in Iran on the basis of different criteria for warehouse location selec-
making; tion. Fuzzy AHP methodology has been used to choose the best out of four options available for
Fuzzy AHP; effectiveness of supply chain.
Sensitivity analysis © 2018 Published by Elsevier Ltd on behalf of Indian Institute of Management Bangalore. This is
an open access article under the CC BY-NC-ND license. (http://creativecommons.org/licenses/
by-nc-nd/4.0/)

Introduction how much to produce and sharing information at different

Warehouses are very important links in a supply chain net-
work at local or globalised markets. Warehouse location in
supply chain network determines the efficiency and speed
of supply chains. In the present context, supply chains are
competing with each other mainly in terms of delivery
lead time and overall product cost. Warehousing processes
contribute to the increased speed of materialflows in sup-
ply chains. A warehouse is a large building where raw
materials or manufactured goods may be stored prior to
their distribution for sale. In general practice, goods from
the manufacturing unit are sent to a warehouse from
where they are issued to different sellers in accordance
with the demand in the market. In order to succeed in
certain demand areas, firms must have a warehouse pres-
ence (Gold et al., 1997). Supply chain management,
besides being about the flow of goods, what to produce,
* Corresponding author: Tel.: +91 99 68071374.
E-mail address: rksdce@yahoo.com (R.K. Singh).
https://doi.org/10.1016/j.iimb.2018.08.009
0970-3896 © 2018 Published by Elsevier Ltd on behalf of Indian Institute of Management Bangalore. This is an open access article under the CC
BY-NC-ND license. (http://creativecommons.org/licenses/by-nc-nd/4.0/)
levels, is also about how much to store at each stage of
the process, and most importantly, to select location for
warehousebe it local or global. Every firm tries to make
its supply chain more efficient, in order to achieve certain
objectives.In order to achieve supply chain objectives
such as market expansion, market penetration, and cus-
tomer support,factors related to warehouse play a major
role. Thus, it becomes important for a firm to take various
decisions about the layout, location and the design of a
warehouse. Supply chain management is highly influenced
by site selection and product quality (Heizer and Render,
2006). Capital investment, operating expenses, and cus-
tomer service are all affected by decisions regarding
warehouse location selection. Warehousing, in the present
day, has become one of the most important enablers for
effective global supply chain network. Today, various
dimensions of supply chain such as flexibility, shorter lead
times and at the same time, corporate profitability are
being easily achieved through warehousing (Christopher,
Peck and Towill, 2006; Baker, 2007; Koskinen and Hilmola,
2008; Hilletofth, 2009).
344
Lurie (2010) has observed that business is an economic
enterprise and hence the main goal of its shareholders is
to maximise profit. Optimal location of the warehouse
ensures success of supply chains in terms of low cost and
more profit.It becomes inevitable for the firm to lay
stress on deciding the perfect location among various
location alternatives present for setting up a warehouse.
Thus the amount of investment done in setting up and
developing a warehouse should always follow a close
analysis directed towards finding out the most optimal
locations amongst the various location alternatives pres-
ent.Adequate space, customer service, favourable traffic
connections with suppliers and key markets, easy free-
way access, proximity to trains and airports and a quali-
fied work force are some of the factors that a
warehousing location study must consider (Dimitris and
Chorafas, 1974). Warehouse location selection is a very
challenging job because location selection once imple-
mented, is irreversible, and hence any wrong decision
can lead to high losses for the firm. A firm, before setting
up a warehouse, faces the challenge of finding the most
optimal location for the warehouse. A warehouse should
be situated in such location from where it increases the
overall efficiency of the supply chain of the firm, and in
no way causes delay in the shipment process or increases
the cost of production (Alberto, 2000). For example, in
an automotive organisation, a break in the production
line causes huge losses to the organisation. Thus the
warehouse should be situated in such a place from where
the production parts are delivered to the manufacturing
plant without any delay (Dogan, 2012). If a company’s
warehouse stores finished products then it becomes nec-
essary that the market is proximally situated so that
there is never a shortage of the product in the market
during the high demand situation and the product is
always delivered at the correct time in the market.
Accorsi et al. (2014) have suggested a decision-support
system (DSS) for the design, management, and control of
warehousing systems, but in the early stage, proper site
selection of warehouse is crucial to improve the perfor-
mance of the entire supply chain. Specifically, in the
present context of a globalised market and e-commerce,
warehouse site selection has become the most important
strategic decision for organisations across all manufactur-
ing sectors.
In a survey of logistics costs in Europe,it was observed
that the cost of inventory is 13% of the total logistics costs,
while warehousing accounted for a further 24% (European
Logistics Association/AT Kearney, 2004). A similar study in
the USA, found inventory costs significantly higher at 24%
with warehousing as 22%, being close to the European figure
(Establish Inc. /Herbert W. Davis & Co., 2005). It has been
observed that in developing countries such as India, and
other south Asian countries, the share of warehousing cost is
more than in developed countries, due to poor infrastruc-
ture and lack of automation. Logistic costs in India have
been estimated at 13-14% ofthe Indian GDP which is higher
than 8% in the case of USA (Sanyal, 2006). The cost of ware-
housing in India is 29% of the total logistics cost whereas in
USA this cost is 22%(Indian Logistics/JLL, 2015). According to
Frazelle (2002) warehousing also ensures effective customer
service, with product availability being a key service metric
R.K. Singh et al.
and warehousing being critical to the success or failure of
many supply chains.
Many Indian autocomponents manufacturures supply their
components in secondary market of Iran. They face tough com-
petition from Chineses manufacturers in terms of cost and qual-
ity. Managing their components inventory and storage facilities
in Iran is a big challenge for Indian companies. Recently, the
Government of Iran announced various tax incentives for pro-
moting industrial activities in Special Economic Zones (SEZs) and
Free Trade Zones (FTZs). Therefore, many Indian organisations
are trying to exploit available opportunities in Iran.The process
of selecting a warehouse requires a clear understanding of the
underlying strategy to be developed and must communicate this
research to all the stakeholders involved. There has been a sig-
nificant amount of work done in the field of facility location for
local network, but not much work is seen for global supply chain
particularly in the context of Iran.Considering the fact that
logistics and warehousing cost in India is quite high as compared
to developed countries, appropriate location of warehouse to
expand supply chain is crucial. This apart, timely decisions for
network optimisation gives competitive edge to organisations. It
is expected that sanctions on Iran would be lifted in the near
future, and this would provide Indian organisations a huge
potential to expand their business in middle-east Asia especially
Iran. The trade between the two countries stood at $15.25 bil-
lion in 2013-14. India’s trade with Iran, 2000 – 2014, has grown
with a compound annual growth rate (CAGR) of 39.6% and
export with CAGR of 29% (Exim Bank, 2014). Indian auto compo-
nents manufacturers mainly deal with replacement or secondary
markets in Iran. To engage with original equipment manufac-
turers (OEMs), timely delivery of components and synchronisa-
tion of processes with OEMs is very important. Therefore Indian
organisations are looking to have their own warehouses in Iran
so that they could meet the requirements of OEMs in terms of
ontime delivery with flexibility. The major criteria taken into
consideration in selecting a warehouse location are proximity
factors, government, labour characteristics, infrastructure, and
climate. These location alternatives can be evaluated by using
multiple criteria decision method (MCDM) on the basis of the
selected criteria (Creed and Jenkins, 1968). In the proposed
framework, nine criteria have been considered and further clas-
sified into three categories,i.e Infrastructure, government and
market. The weight of the criteria is given by linguistic variables
that can be expressed in triangular fuzzy numbers.A sensitivity
analysis is also performed to analyse the impact of change in cri-
teria weightage and to check the robustness of the model.
The remainder of the study is organised as follows: the
literature review of criteria for warehouse/facility location
is given in the second section. In the third section, research
methodology is presented, followed by a case illustration in
the fourth section. The fifth section providesthe conclusion
and managerial implications.
Criteria identification for warehouse site
selection
A dynamic market scenario in terms of reducing product life
cycle, shorter delivery lead time, increasing stock keeping
units (SKUs), and increasing customer expectations in terms
of service quality have created key challenges for
manufacturing organisations to survive. In order to meet
Selection of warehouse location for a global supply chain
these challenges, organisations need to optimise their sup-
ply chain networks. While optimising the supply chain net-
work, efficient product delivery from the manufacturing
plant to warehouse and then to retailers is very important.
Therefore the optimal location of warehouse in supply chain
network has become a strategic decision for top manage-
ment. Location of warehouse also influences decisions
related to lot sizing and scheduling issues in supply chains
(Mishra et al., 2011).
Weber (1989) introduced the concept of warehouse loca-
tion selection for the first time by locating a warehouse such
that the total distance travelled between the warehouse
and the customers gets minimised. Martel and Vankatadri
(1999), and Ozsen et al. (2008) have studied warehouse loca-
tion problems under continuous economies of scale. Sharma
and Berry (2007) considered the single stage capacitated
warehouse location problem (SSCWLP). The problem was to
select some points where the warehouse can be set up in
such a manner that the total transportation cost and the
warehouse location cost is minimised. Michel and Van Hen-
tenryck (2004) presented a simple tabu search algorithm for
the incapacitated warehouse location problem (UWLP). A
linear neighbourhood was used in the algorithm in order to
make the tabu search work better. Colson and Dorigo (2004)
presented a public warehouse selection support system
(PWSS) in order to provide users with an opportunity to
exploit a classical database on public warehouses, where
various types of information is given on each warehouse
located in a given country. This software on public ware-
house selection support has two purposes, i.e. to select pub-
lic warehouses according to several criteria and to exploit a
database when some data are missing (Ashrafzadeh et al.,
2012). Partovi (2006) developed a new analytical model for
facility location that is capable of taking into account both
the external and internal criteria that sustain competitive
advantage. The Partovi model is based on quality function
deployment (QFD) and it includes the analytic hierarchy pro-
cess (AHP) and the analytic network process (ANP) concepts
to determine the most optimal location for a facility. Tzeng
and Chen (1999) gave a location model based on a fuzzy
multi objective approach. Hidaka and Okano (1997) pro-
posed a simulation-based algorithm named ”balloon search”
to the large-scale incapacitated warehouse/facility location
problems.
Furthermore, delivery of goods to and from the ware-
house raises the demand for a proper transportation system
which includes the presence of road network, sea ports, air-
ports and railway station in the vicinity (Demirel et
al.,2010).Infrastructural factors such as electricity and
water supply, and telecommunication setup plays an impor-
tant role in the efficient functioning of a warehouse (Mac-
Carthy et al., 2003). Moreover the future scope for the
expansion of markets in the vicinity of the warehouse loca-
tion is also considered important because it provides an idea
to the firm, on whether investing in such location is going to
be profitable to them or not. Efficiency and value of a supply
chain can further be increased by selecting a warehouse
location where government policies are in favour of the firm
(Min et al., 1999). The government policies include the cost
of land, tax structure present in that location, legal guaran-
tees and other incentives offered by the government to the
firm for investing in that location (Ashrafzadeh et al., 2012).
345
In this study, based on literature review, nine major
factors/sub-criteria are selected, namely transport and con-
nectivity, electricity and water supply, information technol-
ogy (IT) and telecommunication setup, cost of land, taxation
policies, incentives, market size, proximity to main market,
and scope for market growth. These sub-criteria were
further clustered into three categories based on experts
opinion, i.e. infrastructure, government and market.
Infrastructure: This category refers to infrastructural
facilities such as developed link via roads, nearness to rail-
way stations, airports or seaports, availability of electricity,
water supply and means of communication.
Government: This categorydeals with the criteria per-
taining to government controlled factors. It includes sub-cri-
teria such as taxation policies and legal guarantees,
incentives and cost of land.
Market: Different market related criteria are considered
under this category.It includes sub-criteria such as current
market size, proximity to market from the warehouse and
future scope for market expansion.
Based on the experts opinion and secondary data, four
alternatives for warehouse sites available in SEZs and FTZs
are considered. The mainland is not considered due to high
cost factors and availability of different government incen-
tives and tax benefits at FTZs and SEZs. The alternative
locations are namely Kish Island, Port of Chabahar, Sirzan,
and Salafchegan. The most optimum location will be
selected out of these four locations based on the above men-
tioned set of criteria.
The main factors and corresponding sub-criteria for ware-
house location selection are summarised in Table 1.
Research methodology
Optimal location of warehouse depends upon many criteria.
The decision should not be taken in a spontaneous manner
based on a few criteria for short term gains. Warehouse loca-
tion is a strategic decision, therefore for optimal location of
the warehouse, a multiple criteria decision making (MCDM)
tool should be considered. Singh (2013) has applied AHP for
prioritising the critical factors for coordinated supply chain.
The AHP is suitable for situations when the decision making
problem can be dissociated as criteria, sub-criteria, and
alternatives. In addition to this, in this approach, pairwise
comparisons are made at all levels of hierarchy, therefore it
gets harder to perform AHP as the number of alternatives
and criteria increase. The Technique for Order of Preference
by Similarity to Ideal Solution (TOPSIS) and (ELimination and
Choice Expressing Reality (ELECTRE) approaches are suitable
when number of criteria and alternatives are many (Ozcan
et al., 2011). In this study, nine criteria and four alternatives
have been identified for warehouse site selection. These
nine criteria are further grouped into three categories.
Therefore AHP is an appropriate tool under the prevailing
conditions. However to reduce bias in the present context,
the study has applied fuzzy AHP approach. Kumar and Singh
(2012) have used fuzzy AHP and TOPSIS approach for selec-
tion of third party logistics (3 PL). Bairagi et al. (2013) have
used a hybrid fuzzy technique for the selection of warehouse
location in a supply chain under a utopian environment.
Singh and Sharma (2015) have used Fuzzy AHP for comparing
346 R.K. Singh et al.

Table 1 Criteria for warehouse site selection.

Categories Sub-criteria Description References

Infrastructure Transport and connectivity It includes transportation facilities such as
(T&C) developed links via roads, nearness to rail-
way stations, airports or sea ports.
Electricity &water supply It refers to the ease and availability of supply
(E&WS) of water and electricity in the area where
warehouse needs to be setup.
IT &tele-communication setup Communication is essential for working of a
(ITS) warehouse and hence it is very important
to have a proper telecommunication setup
around the warehouse location.
Government Cost of land(CoL) It refers to the cost at which the land can be
acquired in a particular area for setting up
a warehouse.
Taxation policies(TP) Taxation policies refer to various taxes
imposed by the government that the firm
owning the warehouse has to pay to the
government.
Incentives(Inc) Incentives are provided by the government
to attract investments from firms.
Market Market size(MS) It refers to the size of the market present in
the area near proposedlocation.
Proximity to main market(PMM) Proximity to main market will help in reduc-
ing logistic cost andin providing better ser-
vice to OEMs in terms of time and
flexibility.
Scope for market growth(SMG) Potential growth of market in future will
result in more demand and hence economy
of scale.
Turgut et al. (2011); Yang and
Lee (1997); Wu and Radbone,
(2005)
Ashrafzadeh et al (2012); Turgut
et al. (2011); Rothenderg et al
(2005); Zhu et al. (2008);
Chan (2003)
Ashrafzadeh et al. (2012);
Turgut et al. (2011); Min
(2006)
Ashrafzadeh et al. (2012); Dem-
irel et al. (2010); Turgut et al.
(2011); Glasmeier and Kibler
(1996); Sivitanidou (1996)
Demirel et al. (2010); Yang and
Lee (1997)
Demirel et al. (2010)
Vlachopoulou et al. (2001)
Demirel et al. (2010); Ashrafza-
deh et al. (2012); Turgut et al.
(2011); Huifing and Aigong
(2008); Durnus and Turk
(2012)
Wu and Radbone (2005); Polese
and Shearmun (2004); Shear-
mun and Alvergne (2002);
Elberto (2000); Maccanty and
Allthriawng (2003)

competitiveness between two supply chains. As decisions in A fuzzy number A » on R is a TFN if its membership func-
this study are based on relative scores given to different cri- tion x 2 A » ; m A » ðxÞ : R ! ½0; 1 satisfies given relation in
teria, a team of five experts was formed for this purpose. Equation 1.
Three of the experts are senior managers from global logis- 8
>
> 0; x <l
tics and management firms,and two experts are government
 > < ðxlÞ=ðmlÞ; l x m;
officials with experience in policy formulation.Most of the m xjM ~ ¼ ð1Þ
decisions made in the real world are indistinct in nature; >
> ðux Þ=ðumÞ; m x u;
>
:
they are not precise. To overcome this problem of the fuzzy 0; x > u
nature of human thoughts, Zadeh(1965) introduced the
fuzzy set theory which could represent the vague or uncer-
tain data in its natural form. According to Mahendran et al.
(2014), a fuzzy number is a class of objects with a continuum
of grades of membership.Kahraman et al.(2007) have
observed that such a set is characterised by a membership
(characteristic) function, which assigns to each object a
grade of membership ranging between zero and one.Fuzzy
numbers are a fuzzy subset of real numbers, representing
the expansion of the idea of the confidence interval. A tilde
‘»’ will be placed above a symbol if the symbol represents a
fuzzy set. A triangular fuzzy number (TFN) is denoted as (l,
m, u). According to the definition by Laarhoven and Pedrycz
(1983), a triangular fuzzy number (TFN) should possess the
following basic features with reference to Figure 1. Figure 1 A triangular fuzzy number.
Selection of warehouse location for a global supply chain 347
P
Wherel and u stand for the lower and upper bounds of the To obtain m j
j¼1 Mgi , perform the fuzzy addition operation
fuzzy numberA » , andm stands for the modal value of m extent analysis values for a particular matrix such that
According to Chiou and Tzeng(2001), five basic linguis- !
Xm Xm X
m X
m
tic terms,“absolutely important”, “very strongly impor- Mgi ¼
j
lj ; mj ; uj ð5Þ
tant”, “essentially important”, “weakly important”, and j¼1 j¼1 j¼1 j¼1
“equally important” can be used for comparison of two Pn Pm
factors. Here each membership function (scale of fuzzy And to obtain ½ i¼1 j¼1 Mjgi 1 , perform the fuzzy addi-
number) is defined by three parameters of the symmetric tion operation of Mjgi (j = 1, 2. . . m) values such that
!
TFN, the left point, middle point, and right point of the Xn X m Xn Xn Xn
range over which the function is defined. The use of lin- Mgi ¼
j
li ; mi ; ui ð6Þ
guistic variables is currently widespread and the linguis- i¼1 j¼1 i¼1 i¼1 i¼1

tic effect values of the best plan alternatives are

And then compute the inverse of the vector in Equation
primarily used to assess the linguistic ratings given by
(6) such that
the evaluators. The final selection of alternative location
" #1  
is done by fuzzy analytic hierarchy process. Fuzzy AHP is Xn X m
1 1 1
further discussed in the next section. Triangular fuzzy
j
Mgi ¼ Pn ; Pn ; Pn ð7Þ
i¼1 j¼1 i¼1 ui i¼1 mi i¼1 li
conversion scale used for pairwise comparison is given in
Appendix A1. Step 2: The degree of possibility of M2 ¼ ðl2 ; m2 ; u2 Þ  M1
¼ ðl1 ; m1 ; u1 Þ is defined as:
  
Fuzzy AHP V ðM2  M1 Þ ¼ supy  x min mM1 ðx Þ; mM2 ðy Þ ð8Þ

According to Kahraman et al. (2004), the decision maker is and can be equivalently expressed as follows:
usually more confident giving interval judgments rather V ðM2  M1 Þ ¼ hgtðM1 \ M2 Þ ¼ mM2 ðd Þ
than fixed value judgments. This is because usually a person 8
>
> 1; If m2  m1
is unable to be explicit about his/her preferences due to the >
<
0; If l1  u2 ð9Þ
fuzzy nature of the comparison process. Researchers have
>
> l1 u2
proposed different fuzzy AHP methods. Van Laarhoven and >
: ; Otherwise;
Pedrycz(1983) compared the fuzzy ratios described by trian- ðm2 u2 Þ ðm1 l1 Þ
gular membership functions. Fuzzy ratio in the calculation
Where d is the ordinate of the highest intersection point D
for pair-wise comparison was proposed by Buckley(1985).
between mM1 and mM2 .To compare M1 & M2, we need both
Mikhalov(2003) suggested a programming method of fuzzy
the values of V(M1  M2) and V(M2  M1). The intersection of
preference. Chang (1996) introduced a new approach for
M1 and M2 is shown in figure 2.
handling fuzzy AHP, with the use of triangular fuzzy numbers
Step 3: The degree possibility for a convex fuzzy number
for the pairwise comparison scale of fuzzy AHP, and the use
to be greater than k convex fuzzy numbers Mi ði ¼ 1; 2; :::; kÞ
of the extent analysis method for the synthetic extent val-
can be defined by
ues of the pairwise comparisons. Weck et al. (1997) pre-
sented a method to evaluate different production cycle V ðM  M1 ; M2 ; ::::; Mk Þ ¼ V ½ðM  M1 Þ and ðM  M2 Þ and::::and ðM  Mk Þ
alternatives, adding the mathematics of fuzzy logic to classi- ¼ minVðM  Mi Þ; i ¼ 1; 2; 3; ::::; k:
cal AHP. Kuo et al. (2002) developed a decision support sys- ð10Þ
tem for locating a new convenience store. Shin et al. (2007)
consider Chang’s extent analysis as one of the latest Assume that; d 0 ðAi Þ ¼ minV ðSi  Sk Þ ð11Þ
approaches to fuzzy AHP. It is easy to understand and is capa-
ble of using both qualitative and quantitative data (Tabari et For k = 1,2,. . .,n; k 6¼ 1. Then the weight vector is given by
al., 2008).Chang’s (1996) extent analysis can be represented W ¼ ðd 0 ðA1 Þ; d 0 ðA2 Þ; :::; d 0 ðAn ÞÞT ;
0
ð12Þ
by following steps:.
Let X = {x1,x2, . . ., xn} be an object set, and U = {u1, Where Ai (i = 1,2,. . .,n) are n elements.
u2, . . ., um} be a goal set. According to Chang’s extent analy- Step 4: Via normalisation, thenormalised weight vectors are
sis, each object is taken and extent analysis for each goal, gi, W ¼ ðd ðA1 Þ; d ðA2 Þ; :::; d ðAn ÞÞT ; ð13Þ
is performed. Therefore, m extent analysis values for each
object can be obtained, with the following signs:
M1gi ; M2gi ; ::::::; Mm
gi ; i ¼ 1; 2; . . . ; n ð3Þ

Where all the Mjgi (j = 1,2. . ., m) are TFNs.

Chang’s extent analysis can be given as in the following
steps:
Step 1: The value of fuzzy synthetic extent with respect
to the ith object is defined as
" #1
Xm n X
X m
Si ¼ Mjgi  Mjgi ð4Þ
j¼1 i¼1 j¼1
Figure 2 The intersection between M1 and M2.
348
Where, q is a non-fuzzy number.
The different steps followed in this methodology are
shown in the flowchart in Figure 3.
Case illustration
In the present day context, most of the supply chains are
global in nature. There is a competition among the supply
Figure 3 Fuzzy AHP flowchart.
R.K. Singh et al.
chains rather than the firms. Hence, to gain a competitive
advantage, it is necessary for a firm to extract the maximum
value out of its supply chain mechanism. In a supply chain
network, location of inventory at different nodal points is
very important. Hence, optimal location of warehouse plays
a very important role in optimising the inventory turnover
ratio and reducing the total logistics cost. Therefore, this
study is based on warehouse site selection considering
Selection of warehouse location for a global supply chain
different criteria for optimal selection of location. This
research is in the context of an Indian auto components
manufacturing organisation looking forward to expand its
business in Iran via broadening its market reach and pres-
ence in Iran and other countries in the vicinity.
India’s exports basket to Iran is dominated by inorganic
chemicals, articles of iron or steel and cereals, with these
three items accounting for a significant 50.6 % of India’s
total exports to Iran in 2014. Also, there lies a huge potential
for Indian firms to cater to the needs of Iran in sectors such
as machinery and instruments, iron and steel, pharmaceuti-
cals, vehicles other than railway.Specific to this case, for an
auto components manufacturing firm for sustainable
growth,it is necessary to select a warehouse location based
on major criteria to exploit the market scenario in Iran and
other proximal countries. Hence, this study will prove to be
of practical use to the Indian organisation(referenced
above) in this study. Expecting that sanctions on Iran will be
removed in future, the said Indian organisation is following a
proactive approach for its business expansion in Iran. For
this purpose, based on secondary data, four possible
locations, i.e. Kish Island, Port of Chabahar, Sirzan and,
Salafchegan are considered to establish a warehouse. Kish
Island and Port of Chabahar are in free trade zones of Iran,
whereas Sirzan and Salafchegan are in special economic
zones. Because the selected locations are part of SEZs and
FTZs, different incentives and tax benefits by the Iranian
Government are available in these locations. Brief descrip-
tions of these four locations and their salient features fol-
low.
Kish Island
 Second largest island in the Persian Gulf with a total area
of 91 sq km.
 Distance to the nearest port is 18 km, 300 km to Bandar
Abbas and 200 km to United Arab Emirates.
 Has a moderate climate for 8 months of the year.
 Kish International Airport connects the Island with 12
major cities in Iran.
 The production rate of the water desalination facility is
over 8000 cubic m daily.
 90 MW of electricity is available.
 The Kish telephone network is connected to an
advanced 5000 extensions network, with 1000 mobile
telephones.
 The island has over 1000 accommodation spaces.
 The mainland and the countries around the Persian Gulf
are the sphere of influence of the economy of Kish.
Port of Chabahar
 Chabahar is the closest and Iran’s best access point to
the Indian Ocean.
 The strategic position of Chabahar gives it ready access
to international waters and places it in the most conve-
nient position among regional markets.
 It has a dock which harbours ocean going vessels, and
facilitates loading and unloading of up to 2,000,000 tons
of goods per year.
349
 Has an international airport and land transportation
route which links the area with locations as far as Cen-
tral Asia.
 Most of the terms and conditions for doing business are
negotiable.
 Warehouses are available at low rent.
 Adequate reserves of water and electricity, efficient
telecommunication network, and cold storage facilities
are available.
 In view of the Commonwealth of Independent States
(CIS) countries, Chabahar has the best locations.
Sirzan
 Well connected to other parts of Iran by rail, road and air
transportation.
 No time limitation for storage of goods and raw materi-
als.
 Immense opportunity for transit, export and re-export.
 Zero duty on the goods produced within the zone itself.
 1,80,000sq km covered and 40,000 sq km open ware-
house to store 4 million tons of goods.
 Has cold storage with 5,000 tons of capacity.
 Has a power station and international distribution net-
work.
 E-communication is available throughout the SEZ.
Salafchegan
 Well connected tothe country’s major highways to
North, South, East and West, like Tehran- Salafchegan,
Tehran-Qom and Isfahan highways.
 Accessibility to national railway and international air-
port.
 Presence of 60% of the main industries of the whole
country within a 230 km radius.
 Guaranteed general ownership of construction for for-
eign investors in accordance with regulations.
 Economically feasible to set up cold storage facilities.
 Has a warm climate as it is situated next to a desert.
 Possibility of opening currency branches of banks to
facilitate activities.
Based on a literature review,a complete framework for
analysing the data for warehouse selection is shown in
Figure 4. The framework shows four levels of hierarchy,
starting from the ultimate goal, i.e. optimal selection of
warehouse location, to respective criteria and sub-criteria
at the hierarchy levels two and three, and the set of alterna-
tives at level four. On the basis of selected criteria, the
alternative locations are evaluated to select the most opti-
mal one.
Results and discussion
Alternative location options are Port of Chabahar (PC), Sir-
zan SEZ (Sz), Salafchegan SEZ (Sal), and Kish Island (KI). The
objective of the study is to select the best location for ware-
house among the considered alternatives in this study. Based
on the framework developed (Figure 4),pairwise comparison
350
Figure 4 Framework for warehouse site selection.
among different criteria is done. For this purpose a team of
five experts working in the area of logistics, international
business and policy formulation is constituted. For pairwise
comparison, fuzzy scale given in appendix A1 is used. The
weighing and comparison of criteria is done by a decision
making group consisting of trade experts, supply chain
experts, and government representatives. The fuzzy evalua-
tion matrix with respect to goal,for major factors, i.e. infra-
structure, government issues and market availability,is
given in Appendix A2 (a). Based on the analysis, it is
observed that maximum priority weight is for market poten-
tial (0.83) followed by infrastructure available (0.17). It
implies that for warehouse site selection, organisations
need to analyse market size and growth potential very care-
fully.
The decision making team now compares the sub-criteria
with respect to main factors. Firstly, sub-criteria of infra-
structure (Infra) are compared as given in Appendix A2(b).
Under infrastructure category, the most important sub-crite-
ria are transportation and connectivity.Then, sub-criteria of
government (Govt) and market (Mar) are compared (Appen-
dix A2(c) and A2 (d)). Under government category, cost of
land is the most important factor in site selection. Under
market category, proximity to market is the most important
factor, followed by scope for market growth. After this, pri-
ority weights for all locations are calculated based onthe
sub-criteria, i.e.transport and connectivity (T&S), electric-
ity and water supply (E&WS), IT and telecommunication
setup (ITS), cost of land (CoL), taxation policy(TP), incentive
(Inc), market size (MS), proximity to main market (PMM),
and scope for market growth (SMG) (Appendix A2(e) to A2
(m)). In terms of transport and connectivity, electricity and
water supply, IT and telecommunication, market size, prox-
imity to main market, Salafchegan emerges as the most
preferable location for setting up the warehouse. The reason
for this is that Salafchegan is highly developed and well con-
nected to the main market near the Iranian capital Tehran.
Moreover industrialisation in Iran is mainly near Tehran and
R.K. Singh et al.
market demand is also continually growing there. In terms
of cost of land, tax policies and incentives, Port of Chabahar
is the preferable location.The Government of India has also
taken some initiatives to develop Port of Chabahar to facili-
tate increasing trade between India and Iran. In terms of
market growth potential, incentives, and tax policies, Kish
Island also emerges as a preferable location to set up the
warehouse.
On the basis of the foregoing analysis, it is observed that
the ranking of preferred location changes with respect to
different criteria. Therefore, to evaluate the final location,
composite score based on the analysis needs to be derived.
After combining different priority weights for different loca-
tions based on different criteria,the summary of the com-
bined analysis is given in Table 2(a). Final results for
warehouse site selection are given in Table (2b). After this
final analysis, it is observed that Salafchegan is the most pre-
ferred location for warehouse location, followed by Sirjan.
On the basis of many individual criteria, Salafchegan was
found to be a preferred location but Sirjan was never the
most preferred location. It was a second preference in terms
of most of the criteria. Therefore, it is a unique finding that
sometimes a particular location is not the most preferred
location in terms of individual criteria, but on the basis of
the composite score after considering all criteria, it may
emerge as one of the most preferable locations. This implies
that the Management should follow a comprehensive
approach to select the location of the warehouse.
Sensitivity analysis
From the above analysis, it is observed that preference of
warehouse site selection is highly sensitive to priority
weights of different criteria. It may change under different
scenarios. Therefore to check the robustness of the devel-
oped framework, sensitivity analysis has been performed in
this section. Through sensitivity analysis, different “what-
if” scenarios can be visualised which are helpful to observe
Selection of warehouse location for a global supply chain 351

Table 2a Summary after combination of priority weights the impact of changing the weight of criteria on the final
based on sub-criteria. ranking of alternatives (Irfan, 2013). In Figures 5,6, and 7
sensitivity analysis of fuzzy AHPis shown. It is obtained by
Sub-criteria of Infrastructure changing the weights of the main criteria (Kahraman, 2006)
T&C E&WS ITC Alternative i.e. infrastructure, government and market, respectively.In
priority weight this study, three cases have been considered. Eleven differ-
ent states are formed in each case. For each case, maximum
Weight Alternatives 1 0 0 weight 1 has been given to one criteria at starting stage.
Salafchegan 0.75 1 0.44 0.75 Weights are continuously changed in different states,but the
Sirzan 0.25 0 0.44 0.25 total weight for all three criteria in each state will remain 1.
Kish Island 0 0 0.12 0 Case 1 with starting maximum priority weight 1 to infra-
Port of Chabahar 0 0 0 0 structure is given in Figure 1. Under each state, priority
Sub-criteria of Government weights for all sites have been determined as done in the
earlier section. From case 1 (Figure 4), it is observed that
CoL TC Inc Alternative from state 1 to state 11, Salafchegan remains the first prior-
priority weight ity although its relative weight is declining continuously.
Weight Alternatives 1 0 0 In case 2, maximum weight 1 is given to government in
Salafchegan 0 0 0.11 0 starting state 1. As per the earlier discussion, 11 states have
Sirzan 0 0.12 0.11 0 been considered and priority weights for sites have been
Kish Island 0.33 0.44 0.39 0.33 evaluated. Results are shown in Figure 5. It is observed that
Port of Chabahar 0.67 0.44 0.39 0.67 in the initial state when government support is high, Port of
Chabahar is the preferred location, but after state 6, Salaf-
Sub-criteria of Market chegan again emerges as the preferred location. The reason
MS PMM SMG Alternative for this could be that the Port of Chabahar is the nearest
priority weight port to India, but is still in a developing stage. Therefore, it
Weight Alternatives 0 0.83 0.17 requires huge government support in terms of its develop-
Salafchegan 0.74 0.65 0 0.5395 ment and market creation. Recently the Government of
Sirzan 0.26 0.35 0 0.2975 India has shown interest in collaborating with the Iranian
Kish Island 0 0 0.79 0.1343 Government to develop this port on priority basis. Once it is
Port of Chabahar 0 0 0.21 0.0357 fully developed and connected with Indian ports, there is a
huge potential for trade growth between the two countries.
In case 3, maximum weight 1 has been given to market
condition in starting state 1. In a similar fashion as above, 11
Table 2b Final priority weights for locations based on major
states for sensitivity analysis have been made by changing
factors.
weights of the three main factors. The sum of the total
Main criterion of the site selection weight for all three factors at each state should be 1. Results
for case 3 are given in Figure 6. It is observed that for all
Infra Govt. Mar Alternative priority states, Salafchegan is the most preferred location for ware-
weight house site selection.
Weight Alternatives 0.17 0 0.83 From this sensitivity analysis, it is observed that in all the
Salafchegan 0.75 0 0.5395 0.5752 three cases and under most of the states (cases), Salafche-
Sirzan 0.25 0 0.2905 0.2836 gan has emerged as the most preferred location. Only in
Kish Island 0 0.33 0.1343 0.1114 case 2, at the initial state, Port of Chabahar was the pre-
Port of Chabahar 0 0.67 0.0357 0.0296 ferred location. It requires a lot of Government support for

Figure 5 Sensitivity analysis of fuzzy AHP(Case 1).

352
Figure 6 Sensitivity analysis of fuzzy AHP (Case 2).
Figure 7 Sensitivity analysis of fuzzy AHP (Case 3).
further development and market growth. Therefore, find-
ings show that the framework developed in the study is
highly robust. The results are quite consistent. Consistency
in the outcome of any framework is a major requirement for
confidence building in organisations. It helps organisatiions
take appropriate decisions, and in the formulation of effec-
tive operations strategy.
Conclusion
The international nature of markets in today’s world has led
firms to focus on global presence,because of which the
requirement of robust logistics and need for warehousing
has increased. In this study, a framework is proposed for
selection of warehouse location. The developed framework
is implemented taking the case of an Indian autocomponents
manufacturing firm, looking to expand its business in Iran. In
the recent past, India-Iran trade relations have followed an
upward trajectory and mutual efforts are being made by
both the governments to improve future trade. The recent
lifting of sanctions on Iran will be a natural boost to the
trade relations of both countries. Based on literature review
and expert opinion, nine sub-criteria for warehouse location
R.K. Singh et al.
are identified. These are further grouped into three main
categories, i.e. infrastructure, government and market. The
four alternatives considered for warehouse location are Sal-
afchegan, Sirzan, Kish Island and Port of Chabahar located in
FTZs and SEZs of Iran. To deal with the uncertain nature of
human behaviour for decision making, fuzzy AHP method is
applied. Normalised priority weights are calculated for each
location. On the basis of priority weights,the final decision
for warehouse location is taken. Salafchegan with the high-
est weight, emerges as the most optimal location for setting
up a warehouse in Iran. It is followed by Sirzan which is fol-
lowed by Kish Island and lastly, Port of Chabahar. To check
the robustness of the developed framework, sensitivity anal-
ysis is also performed. It is observed that results do not
change under different scenarios, indicating that the pro-
posed frameworkfor location selection is quite robust. How-
ever, it may be noted that this study has considered a
limited number of criteria under the given scenario of the
case study.To apply this framework for other situations and
sectors, criteria and relative weights may change. However
the basic approach will remain the same. This framework
will be highly useful for organisations from different sectors
to select the optimal location of the warehouse to optimise
their supply chain network. One limitation of the study is
Selection of warehouse location for a global supply chain 353

that it has considered major influencing criteria in ware- other MCDM tools such as TOPSIS integrated with the Gray
house location decision. Although Ozcan et al.(2011) have relational analysis (GRA) approach.
considered only five factors to decide the warehouse loca-
tion problem,as an extension of the present research for
Acknowledgement
another scenario, criteria such as security, cost, labour force
availability, and environmental factors can also be consid-
Authors express sincere thanks to the reviewers for their
ered, in case they are major decision criteria. This frame-
valuable comments and suggestions. It has improved the
work may be also useful for the Ministry of External Affairs
quality and content of the paper.
and other government agencies in developing warehouse
facilities for use by Indian organisations to facilitate interna-
tional trade. Regional trade agreements can be also based Appendix
on such frameworks for infrastructure development. As a
future scope of work, findings can be further validated with Tables A1 and A2.

Table A1 Triangular fuzzy conversion scale used for pairwise comparison.

Linguistic scale Triangular fuzzy scale Triangular fuzzy reciprocal scale

Just equal (1,1,1) (1,1,1)
Equally Important (1/2,1,3/2) (2/3,1,2)
Weakly important (1, 3/2, 2) (1/2, 2/3, 1)
Strongly more important (3/2, 2, 5/2) (2/5, 1/2, 2/3)
Very strongly more important (2,5/2,3) (1/3, 2/5, 1/2)
Abslutely more important (5/2, 3, 7/2) (2/7, 1/3, 2/5)

Table A2 The pairwise comparison of the selected sub-criteria and available alternatives.

A2(a): The fuzzy evaluation matrix with respect to the goal (level 1)
Infra Govt Mar Priority weights
Infra (1,1,1) (3/2,2,5/2) (2/5,1/2,2/3) 0.17
Govt (2/5,1/2,2/3) (1,1,1) (2/7,1/3,2/5) 0
Mar (3/2,2,5/2) (5/2,3,7/2) (1,1,1) 0.83

A2 (b): Evaluation of sub criterion with respect to infrastructure

T&C E&WS ITS Priority Weights
T&C (1,1,1) (5/2,3,7/2) (5,/2,3,7/2) 1
E&WS (2/7,1/3,2/5) (1,1,1) (2/3,1,3/2) 0
ITS (2/7,1/3,2/5) (2/3,1,3/2) (1,1,1) 0

A2(c): Evaluation of sub criterion with respect to government

CoL TP Inc Priority weights
CoL (1,1,1) (3/2,2,5/2) (7/2,4,9/2) 1
TP (2/5,1/2,2/3) (1,1,1) (3/2,2,5/2) 0
Inc (2/9,1/4,2/7) (2/5,1/2,2/3) (1,1,1) 0

A2(d): Evaluation of sub criterion with respect to market

MS PMM SMG Priority weights
MS (1,1,1) (2/7,1/3,2/5) (2/5,1/2,2/3) 0
PMM (5/2,3,7/2) (1,1,1) (3/2,2,5/2) 0.83
SMG (3/2,2,5/2) (2/5,1/2,2/3) (1,1,1) 0.17

(continued)
354 R.K. Singh et al.

Table A2 (Continued)

A2(e): Evaluation of locations with respect to transport and connectivity

Sal Sz KI PC Priority weights
A2(e): Evaluation of locations with respect to transport and connectivity
Sal Sz KI PC Priority weights
Sal (1,1,1) (3/2,2,5/2) (7/2,4,9/2) (5/2,3,7/2) 0.75
Sz (2/5,1/2,2/3) (1,1,1) (5/2,3,7/2) (3/2,2,5/2) 0.25
KI (2/9,1/4,2/7) (2/7,1/3,2/5) (1,1,1) (2/5,1/2,2/3) 0
PC (2/7,1/3,2/5) (2/5,1/2,2/3) (3/2,2,5/2) (1,1,1) 0

A2(f): Evaluation of locations with respect to electricity and water supply

Sal Sz KI PC Priority weights
Sal (1,1,1) (3/2,2,5/2) (5/2,3,7/2) (7/2,4,9/2) 1
Sz (2/5,1/2,2/3) (1,1,1) (2/3,1,3/2) (3/2,2,5/2) 0
KI (2/7,1/3,2/5) (2/3,1,3/2) (1,1,1) (3/2,2,5/2) 0
PC (2/9,1/4,2/7) (2/5,1/2,2/3) (2/3,1/2,3/2) (1,1,1) 0

A2(g): Evaluation of locations with respect to IT and telecommunication setup

Sal Sz KI PC Priority weights
Sal (1,1,1) (2/3,1,3/2) (3/2,2,5/2) (5/2,3,7/2) 0.44
Sz (2/3,1,3/2) (1,1,1) (3/2,2,5/2) (5/2,3,7/2) 0.44
KI (2/5,1/2,2/3) (2/5,1/2,2/3) (1,1,1) (3/2,2,5/2) 0.12
PC (2/7,1/3,2/5) (2/7,1/3,2/5) (2/5,1/2,2/3) (1,1,1) 0

A2(h): Evaluation of locations with respect to cost of land

Sal Sz KI PC Priority weights
Sal (1,1,1) (3/2,2,5/2) (5/2,3,7/2) (5/2,3,7/2) 0
Sz (2/5,1/2,2/3) (1,1,1) (3/2,2,5/2) (3/2,2,5/2) 0
KI (2/7,1/3,2/5) (2/5,1/2,2/3) (1,1,1) (2/3,1,3/2) 0.33
PC (2/7,1/3,2/5) (2/5,1/2,2/3) (2/3,1,3/2) (1,1,1) 0.67

A2(i): Evaluation of locations with respect to tax policies

Sal Sz KI PC Priority weights
Sal (1,1,1) (3/2,2,5/2) (5/2,3,7/2) (7/2,4,9/2) 0
Sz (2/5,1/2,2/3) (1,1,1) (3/2,2,5/2) (7/2,4,9/2) 0.12
KI (2/7,1/3,2/5) (2/5,1/2,2/3) (1,1,1) (3/2,2,5/2) 0.44
PC (2/9,1/4,2/7) (2/9,1/4,2/7) (2/5,1/2,2/3) (1,1,1) 0.44

A2(j): Evaluation of locations with respect to incentives

Sal Sz KI PC Priority weights
Sal (1,1,1) (2/3,1,3/2) (2/7,1/3,2/5) (2/5,1/2,2/3) 0.11
Sz (2/3,1,3/2) (1,1,1) (2/7,1/3,2/5) (2/5,1/2,2/3) 0.11
KI (5/2,3,7/2) (5/2,3,7/2) (1,1,1) (3/2,2,5/2) 0.39
PC (3/2,2,5/2) (3/2,2,5/2) (2/5,1/2,2/3) (1,1,1) 0.39

A2(k): Evaluation of locations with respect to market size

Sal Sz KI PC Priority weights
Sal (1,1,1) (2/3,1,3/2) (2/5,1/2,2/3) (2/7,1/3,2/5) 0.74
Sz (2/3,1,3/2) (1,1,1) (2/5,1/2,2/3) (2/7,1/3,2/5) 0.26
KI (3/2,2,5/2) (3/2,2,5/2) (1,1,1) (2/3,1,3/2) 0
PC (5/2,3,7/2) (5/2,3,7/2) (3/2,2,5/2) (1,1,1) 0

(continued)
Selection of warehouse location for a global supply chain 355

Table A2 (Continued)

A2(l): Evaluation of locations with respect to proximity to market

Sal Sz KI PC Priority weights
A2(l): Evaluation of locations with respect to proximity to market
Sal Sz KI PC Priority weights
Sal (1,1,1) (2/5,1/2,2/3) (2/7,1/3,2/5) (2/7,1/3,2/5) 0.65
Sz (3/2,2,5/2) (1,1,1) (2/5,1/2,2/3) (2/5,1/2,2/3) 0.35
KI (5/2,3,7/2) (3/2,2,5/2) (1,1,1) (2/3,1,3/2) 0
PC (5/2,3,7/2) (3/2,2,5/2) (2/3,1,3/2) (1,1,1) 0

A2(m): Evaluation of locations with respect to scope for market growth

Sal Sz KI PC Priority weights
Sal (1,1,1) (2/3,1,3/2) (2/5,1/2,2/3) (2/5,1/2,2/3) 0
Sz (2/3,1,3/2) (1,1,1) (2/5,1/2,2/3) (2/5,1/2,2/3) 0
KI (3/2,2,5/2) (3/2,2,5/2) (1,1,1) (2/3,1,3/2) 0.79
PC (3/2,2,5/2) (3/2,2,5/2) (2/3,1,3/2) (1,1,1) 0.21

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