This paper deals with the problem of the optimal location of warehouses in the two stage distribution system, i.e., the distribution system where the product is transported from plants to customer areas via warehouses. The Problem is formulated with a zero-one mixed integer programming and an efficient branch and bound algorithm is then used to solve the problem. In order to obtain the solution of this problem, this paper shows the procedure of conversion of two stage distribution system into one stage distribution system. An improved method of solving the linear programming at the nodes and branching decision rule is also showed by this study.