Analyzing the benefits of a city hub: An inventory and routing perspective

Abstract

Collaboration is one of the crucial elements in city logistics and it is often pursued by the introduction of two or multi-echelon systems using one or more intermediate consolidation points, such as Urban Consolidation Centers (UCCs), city depots, city hubs, etc. Our literature review shows that the study of inventory aspects in such a context is relatively unexplored. Therefore, this paper studies the effect of using a UCC or city hub in a B2B city logistics system in terms of both inventory and routing aspects. A multi-period optimization model is proposed to support the operational decisions in urban B2B distribution when using a city hub. We study the effect of introducing a city hub by comparing our model with a baseline model in which urban retailers operate without a city hub. The model accounts for the complexity of urban logistics by considering a heterogeneous vehicle fleet, the option to perform multiple trips per day, and strict customer time windows. A metaheuristic algorithm based on Large Neighborhood Search (LNS) is used to solve the route optimization problem for realistic problem instances. Extensive numerical experiments are conducted according to an experimental design and a statistical analysis. Results indicate that the introduction of a city hub leads to significant reductions in operational costs and societal impacts (e.g., loading degree, number of urban trips, traveled distances). Our analysis shows that these savings are significantly impacted by the problem context (e.g., replenishment policy, number of retailers, number of suppliers, and holding cost). For example, how retailers make replenishment decisions significantly impacts the costs of the overall system and the potential savings. The most cost-efficient replenishment method is often not the most interesting one from a societal perspective. Finally, from a city’s perspective, a sufficient number of retailers and suppliers should participate in the system to maximize consolidation opportunities. However, in relative terms, the largest potential savings by introducing a city hub are reached when not too many suppliers are included and suppliers have a relatively limited number of customers to serve.