A depot location has a significant effect on the transportation cost in vehicle routing problems. This study proposes a hierarchical particle swarm optimization (PSO) including inner and outer layers to obtain the best location to establish a depot and the corresponding optimal vehicle routes using the determined depot location. The inner layer PSO is applied to obtain optimal vehicle routes while the outer layer PSO is to acquire the depot location. A novel particle encoding is suggested for the inner layer PSO, the novel PSO encoding facilitates solving the customer assignment and the visiting order determination simultaneously to greatly lower processing efforts and hence reduce the computation complexity. Meanwhile, a routing balance insertion (RBI) local search is designed to improve the solution quality. The RBI local search moves the nearest customer from the longest route to the shortest route to reduce the travel distance. Vehicle routing problems from an operation research library were tested and an average of 16% total routing distance improvement between having and not having planned the optimal depot locations is obtained. A real world case for finding the new plant location was also conducted and significantly reduced the cost by about 29%.
