Win Ken Bach 2016

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Enabling Urban Logistics Services at La Poste through

Multi-Echelon Location-Routing
Matthias Winkenbach, Paul R. KleindorferDeceased, Stefan Spinler
To cite this article:

Matthias Winkenbach, Paul R. KleindorferDeceased, Stefan Spinler (2015) Enabling Urban Logistics Services at La Poste
through Multi-Echelon Location-Routing. Transportation Science
Published online in Articles in Advance 15 Oct 2015
. http://dx.doi.org/10.1287/trsc.2015.0624
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Enabling Urban Logistics Services at La Poste through

Multi-Echelon Location-Routing
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Matthias Winkenbach
Massachusetts Institute of Technology, Cambridge, Massachusetts 02139, mwinkenb@mit.edu
Paul R. Kleindorfer
Deceased
INSEAD, 77305 Fontainebleau, France
Stefan Spinler
WHU — Otto Beisheim School of Management, 56179 Vallendar, Germany, stefan.spinler@whu.edu
W e present a large-scale static and deterministic mixed-integer linear programming (MILP) model solving
a two-echelon capacitated location-routing problem (2E-CLRP) with modal choice in the context of urban
logistics services (ULS). This model aims to support the development of profitable ULS by guiding the strategic
decision making of postal operators as they design an optimal facility network and vehicle fleet for the centralized
consolidation and transportation of inbound and outbound urban freight flows. After comprehensively analyzing
operating data from La Poste, we identify the key determinants of an optimal infrastructure and fleet design for
the centralized coordination and consolidation of urban freight flows under a global service time constraint.
Further, we discuss the optimal design’s sensitivity to changes in the input data and parameters of the 2E-CLRP
model. The main theoretical contributions of this work are an optimal routing cost estimation formula and an
optimization heuristic. Together these allow us to solve the large-scale MILP problem presented here within a
reasonable time and with little loss of precision.
Keywords: two-echelon location-routing; multi-tier distribution network design; computational optimization;
integer programming; routing cost approximation; urban logistics
History: Received: September 2012; revisions received: December 2013, March 2015; accepted: March 2015.
Published online in Articles in Advance.
1. Introduction outbound shipments are split into individual consign-

Urban logistics services (ULS) represent a number of ments and then reconsolidated depending on their
key issues currently faced by postal operators (POs). final destination (Benjelloun and Crainic 2008; Crainic,
The urban (or city) logistics concept seeks to promote Ricciardi, and Storchi 2009). However, the history of
sustainable development by reducing the negative single-echelon systems is rife with failure. Especially
externalities (viz., congestion, pollutant emissions, fuel for large cities characterized by long line-haul distances
consumption, noise, and other environmental factors) between the CDC and the actual vehicle tours and by
of the continuously increasing demand for urban goods areas of high demand density and congestion, such sys-
tems seldom yield the desired efficiency gains (Dablanc
transportation (UGT) without hampering economic and
2007). Several authors therefore suggest two-echelon
social activity in urban areas. Tighter consolidation and
systems whereby intermediate depots (IDs) within
coordination of individual consignments on a single
the city area form a second level of deconsolidation
fleet and facility infrastructure are expected to yield
to reduce line-haul distances and improve consolida-
efficiency improvements in urban freight collection and tion efficiency in areas of high demand (cf. Crainic,
distribution. This is expected to lead to a reduction in Ricciardi, and Storchi 2004; Gragnani, Valenti, and
the number and size of vehicles and also in the total Valentini 2004).
number of vehicle tours required (cf. Crainic, Ricciardi, There are three major drivers of the continuous
and Storchi 2009). Taniguchi and Van Der Heijden growth in demand for UGT. First, urbanization is pro-
(2000) show that ULS initiatives can be successful gressing at a rapid pace. Between 2011 and 2050, the
in reducing transport cost and the environmental world’s urban population is expected to increase by
impact of UGT. A common approach in this domain is more than 70% to 6.25 billion people (Kamal-Chaoui
to establish consolidation hubs, often referred to as and Sanchez-Reaza 2012; United Nations 2012). Nearly
city distribution centers (CDCs), where inbound and 60% of the world’s gross domestic product (GDP) will
1
Winkenbach, Kleindorfer, and Spinler: Enabling Urban Logistics Services
2 Transportation Science, Articles in Advance, pp. 1–21, © 2015 INFORMS
be generated in the world’s 600 largest cities by 2025 flows, the PO could simultaneously generate additional
(Dobbs et al. 2011), and Blanco and Fransoo (2013) pre- profits and improve the efficiency of urban last-mile
dict that GDP per capita will rise in most cities. With logistics.
the need for UGT being a derived demand, growing Launching a ULS initiative as major as that con-
urban population, GDP, and average wealth will mean sidered by the French national PO, La Poste, clearly
increasing numbers of private and commercial vehicles involves much more than a simple product line exten-
moving within cities (cf. Tapio 2005; McKinnon 2007). sion for existing customers. In particular, it would
Second, the tremendous growth of Internet-based require a significant investment in new infrastructure
electronic commerce (e-commerce) is responsible for and vehicles as well as the acquisition of new and
a huge volume of direct shipments from the man- unfamiliar customer groups that have not previously
ufacturer to the individual client. Direct deliveries used the PO’s offerings. Each of these aspects implies a
driven by e-commerce burden urban transportation significant business risk, which may be inevitable when
networks with increased volume, and they also lead to seeking to establish new business models that compen-
increased fragmentation of consignments and thus to sate for the deterioration of existing revenue streams.
a higher level of complexity—and a greater need for Thus, a fundamental research challenge is to devise
coordination—in UGT (Yoshimoto and Nemoto 2005; modeling that can guide the mitigation of this risk
BESTUFS II 2008). Third, demand for UGT is increas- through sound planning of PO-led ULS. Addressing
ing because of (i) economic globalization, leading to that challenge is the principal objective of this research.
an increasing spatial detachment of production and We make the following specific contributions.
consumption (cf. Banister 2000), and (ii) the geographi- (i) We develop an optimization model to determine a
cal separation between centralized stockholding and cost-optimal infrastructure and fleet design for specific
decentralized break-bulk operations (cf. Supply Chain urban distribution systems. This model considers a
Management Logistics and Other Effects of Transport single-echelon and a two-echelon network as two
(SULOGTRA) 2000–2001; Crainic, Ricciardi, and Storchi competing options; the decision maker can establish
2009). Also, increasing flexibility in industrial produc- the former or the latter or both architectures in parallel
tion and distribution fosters a trend toward smaller to serve different item classes. The model identifies
and more frequent shipments. the cost-optimal number and locations of facilities at
Studies have shown that one of the central prob- each echelon, the optimal size and shape of facility
lems of urban freight and passenger transportation is service areas, and the optimal fleet size and (vehicular)
congestion (Organization for Economic Cooperation composition at each facility.
and Development (OECD) 2003; Figliozzi 2007). In (ii) We derive a closed-form expression for approxi-
particular, a serious lack of parking space for freight mating the optimal routing cost under various con-
vehicles constitutes a major bottleneck in overall urban straints. The approximation approach presented here
mobility (Routhier, Dufour, and Patier 2002; Organi- specifically incorporates a global maximum service
zation for Economic Cooperation and Development time (MST) constraint, vehicle capacity restrictions,
(OECD) 2003). Yet infrastructure capacity for passenger vehicle access and positioning restrictions, and routing
and freight transport within cities is limited and diffi- with simultaneous pickup and delivery.
cult to expand (Banister 2000). Therefore, increasing (iii) We demonstrate the practical significance of
competition for the scarce common good of urban model-based simulation and optimization for La Poste’s
infrastructure capacity will further reduce mobility and strategic decision making as it designs an optimal
render the establishment of rapid, reliable, and efficient infrastructure and fleet for its own strategic initiative
UGT ever more challenging (Crainic, Ricciardi, and to develop ULS for major French metropolitan areas.
Storchi 2009).
Given the financial challenges of continuing to meet
the postal universal service obligation (USO) in the 2. Literature
face of declining mail volumes occasioned by electronic Urban freight distribution system designers must
substitution, ULS represents a potentially profitable address three levels of decisions. On a long-term, strate-
opportunity for diversification building on existing gic level, the optimal number, type, and location of
competencies of postal operators (POs), which may facilities must be identified. On a medium-term, tac-
harvest synergies between a newly offered ULS and tical level, the size and composition of the required
existing postal operations and capabilities. These syn- vehicle fleet at each facility must be determined. On
ergies may arise from improved vehicle and facility a short-term, operational level, those vehicles must
utilization and the reaping of economies of scale and be optimally routed (cf. Boccia et al. 2010). Because
scope for collection and delivery services within and decisions about location and routing are so strongly
between urban regions. By serving as an overarching interrelated, a model that focuses on only one of these
consolidator of inbound and outbound urban item factors is demonstrably inappropriate for the task of
Transportation Science, Articles in Advance, pp. 1–21, © 2015 INFORMS 3
designing an optimal real-world distribution system In their model, both CDCs and IDs are capacity
(cf. Rand 1976; Salhi and Rand 1989). restricted. This work is also discussed in Crainic,
The past three decades or so have seen the emer- Sforza, and Sterle (2011a). Contardo, Hemmelmayr,
gence and development of a body of literature on and Crainic (2012) propose both an exact and a meta-
the location-routing problem (LRP). LRPs are hard heuristic solution method for the 2E-CLRP with mul-
because they are a combination of two NP-hard tiple CDCs, including capacity restrictions at both
problems, the location-allocation problem and the the CDC level and the ID level. Nguyen, Prins, and
vehicle routing problem (VRP) (cf. Karp 1972; Lenstra Prodhon (2010, 2012a, b) present various heuristic
and Rinnooy Kan 1981). As a result, most of the exist- approaches to the 2E-CLRP for a single, already located
ing research examines heuristic approaches to the CDC with unlimited capacity and capacitated IDs.
LRP (Boccia et al. 2010). Laporte (1988, 1989); Min, Schwengerer, Pirkwieser, and Raidl (2012) present a
Jayaraman, and Srivastava (1998); and Nagy and Salhi variable neighborhood search approach to the 2E-CLRP
(2007), among others, provide comprehensive surveys with multiple capacitated CDCs and capacitated IDs.
of the existing LRP literature. Drexl and Schneider The heuristic solution approaches just described
(2014) and Prodhon and Prins (2014) review the lit- perform well on various benchmark LRP instances
erature on the standard LRP and its variants and proposed by Boccia et al. (2010) and Nguyen, Prins,
extensions, such as the multiechelon LRP, published and Prodhon (2012a) and are adapted to the 2E-CLRP.
subsequent to the Nagy and Salhi (2007) survey. These benchmark instances are composed of up to
Laporte (1988) provides a classification of LRPs of 5 CDCs, 20 IDs, and 200 PODs. However, real-world
the form /M1 / · · · /M−1 . It accounts for the number applications the size of a major PO’s operations for
of locational layers, i.e., points of demand (PODs) and an entire city correspond to much larger problem
facilities, that interact, which is denoted by , and the instances. Especially the explicit routing of many small
nature of the vehicle tours connecting these layers, vehicles between the IDs and up to several hundred
denoted by M1 1 0 0 0 1 M−1 ∈ 8R1 T 9. Here, R denotes PODs per square kilometer renders the corresponding
dedicated routes and T denotes multistop tours. 2E-CLRPs virtually intractable. Since operational-level
routing decisions play only a subordinate role in such
2.1. Multi-Echelon Location-Routing large-scale LRPs, total city-level routing costs can be
As pointed out in §1, recent considerations on urban approximated sufficiently well via route length esti-
freight distribution tend towards two-echelon systems mation (RLE) formulas in lieu of explicit (and com-
with one or more CDCs serving the PODs through putationally intensive) VRP formulations (Nagy and
IDs, which are often referred to as satellites (cf. Crainic, Salhi 2007). Note, however, that the use of RLE for-
Ricciardi, and Storchi 2004). For real-world applications, mulas dispenses with the explicit routing of vehicles,
accounting for facility and vehicle capacity restric- so no customer-specific service time windows can be
tions is of particular importance. The corresponding enforced.
model class of two-echelon capacitated location-routing
problems (2E-CLRPs) can be seen as a generalization 2.2. Routing Cost Estimation
of the capacitated location-routing problem (CLRP) Many RLE formulas use regression analysis to develop
and the two-echelon capacitated vehicle routing prob- a closed-form expression for expected route length,
lem (2E-CVRP). Multi-echelon VRP with mobile depots which enables one to derive routing cost as a function
and “truck and trailer” routing problems are both of demand characteristics and geographical properties
closely related to the traditional 2E-CLRP (cf. Prodhon of demand areas. Christofides and Eilon (1969b); Eilon,
and Prins 2014), but they will not be covered here. Watson-Gandy, and Christofides (1971); Daganzo (1984);
Early works on solving the traditional 2E-CLRP in- and Stokx and Tilanus (1991) were among the first to
clude Jacobsen and Madsen (1980); Madsen (1983); and develop regressed-based RLE.
Taniguchi et al. (1999). Some of the more recent research A major drawback of these works is that they require
in this domain is discussed in the surveys by Prodhon information on the average number of PODs that can
and Prins (2014) and Drexl and Schneider (2015). For be served on a feasible vehicle tour. That number
instance, Boccia et al. (2010) propose a tabu search (TS) strongly depends on the location of the depot and
heuristic for the 2E-CLRP with multiple CDCs, decom- the shape and extent of its service area (cf. Nagy and
posing the problem into a capacitated facility location Salhi 1996). Nagy and Salhi (1996) are among the first
problem (CFLP) and a multidepot vehicle routing prob- to develop an RLE formula that infers the feasible
lem (MDVRP) for each echelon. The results of this number of stops per tour from data (viz. demand levels
work are summarized in Crainic, Sforza, and Sterle and drop times) and constraints (viz. vehicle capacity
(2011b). Boccia et al. (2011) propose three different and maximum route length) that are clearly defined
mixed-integer programming (MIP) formulations for in advance. Similarly, Smilowitz and Daganzo (2007)
different classes of the 2E-CLRP with multiple CDCs. present an optimization model for solving a network
design problem for package distribution systems. In Table 1 Notation Introduced for Augmented Routing Cost Estimation
line with Daganzo (2005), their model builds on the
i Density of PODs (stops) in city segment i
following analytical approximation formula for the d1 i Average number of fully loaded tours a single vehicle can make
average unit cost of transportation from a facility to a within the MST
specific area of demand Distance metric factor (i.e., distance multiplier relative to the
Euclidean distance) for in-tour distances
rcdu +cqu o Distance metric factor (i.e., distance multiplier relative to Euclidean
f 4r1v1n15 ≈ cd0u + distance) for line-haul distances
nv
Di Average number of delivery items per POD in city segment i

u
n−1 cd k45
−41/25
+cqu Pi Average number of pickup items per POD in city segment i
+ 0 (1) v Physical carrying capacity per vehicle
n v
in Effective carrying capacity of a vehicle in terms of PODs (stops)
Here v denotes the batch size of items delivered; n is that can be served in city segment i
the number of PODs served along a single VRP route Ai Physical size of city segment i
within the considered area, denotes the density ch Handling cost per item
cv Cost of vehicle operation per hour
of PODs within this area; r is the average distance
Ei 6V D 7 Expected physical size of a delivery item in city segment i
between the PODs in this area and the facility; cd0u is the Ei 6V P 7 Expected physical size of a pickup item in city segment i
handling cost per item for a vehicle of type u; cdu denotes fd1 i Total daily cost of operations to serve city segment i from facility
the per-kilometer operating cost for a vehicle of type u; location d
and cqu is the cost of stopping a vehicle of type u at a fv Vehicle fixed cost (per day)
POD or facility. The value of the constant k depends on md1 i Average number of tours started per vehicle within the MST
nd1 i Number of stops that a vehicle from facility location d can serve
the distance metric used and can be estimated through on a single route in city segment i
simulation. Assuming that POD locations follow a qd1 i Number of vehicles required to serve city segment i from facility
homogeneous two-dimensional Poisson point process location d
with rate , Daganzo (2005) shows that, for an L1 rd1 i Average distance between facility location d and PODs in city
norm or “Manhattan” metric, it is reasonable to assume segment i
s In-tour average speed
k ≈ 1015 (resp., k ≈ 0082) if the number of tours required
so Line-haul average speed
to serve a given area of demand is significantly lower ta Service time per stop
(resp., higher) than the number of stops per tour. For ti Time required for a vehicle tour to serve a number of PODs
the application in §5 of our approximation formula to equivalent to the full effective carrying capacity
La Poste, we assume k ≈ 1015. tl Time to un-/load per item
Tmax Maximum allowed service time (per vehicle)
ts Setup time per tour
3. Augmented Routing Cost Estimation tu Service time per item
In this section we develop an augmented routing cost w Wage cost per hour
estimation (ARCE) formula by adapting Equation (1)
so that it accounts for multiple vehicle options, mixed

fleets, destination-specific vehicle capacities, a global ti = in a D P u
t + 4i + i 5t + √ 1 (5)
MST constraint, and joint pickup and delivery along s i
the same routes. nd1 i = in min611 d1 i 71 (6)
MST and vehicle capacity constraints. Expanding Equa-
tion (1), we formulate the total routing cost of serving md1 i = max611 d1 i 70 (7)
city segment i from facility location d with a single
The notation used here is summarized in Table 1.
vehicle type as
Equation (3) ensures that no vehicle tour violates
fd1 i 4rd1 i 1 in 1 Ai 1 i 5 the vehicle carrying capacity constraints and that no
vehicle violates the global MST constraint. Vehicles
≈ qd1 i md1 i t s w + qd1 i md1 i nd1 i 4Di + Pi 5c h + qd1 i f v are assumed to make full use of the available MST.
o rd1 i Equation (4) translates the global MST constraint into
+ 2qd1 i md1 i 4w + c v 5 a potential second vehicle capacity constraint. The
so

third term in the denominator of the right-hand side of
a D P u
+ qd1 i md1 i nd1 i t + 4i + i 5t + √ 4w + c v 51 (2) Equation (4) captures the time required to overcome
s i
the line-haul distances between the facility location
where and the beginning and end of the actual tour. By
Ai i Equation (6), then, the number of nodes a vehicle can
qd1 i = 1 (3) serve along a single tour is bounded either by the
in d1 i
effective carrying capacity of the vehicle (in ) if d1 i ≥ 1
Tmax or by the fraction d1 i thereof if the specified time
d1 i = 1 (4)
ti + ts + 24o rd1 i /s o 5 + in t l span is not long enough for a full tour, i.e., if d1 i < 1.
Table 2 Comparison of Proposed ARCE Formula With TS Meta-Heuristic of Côté and Potvin (2009)
Tmax 2 4 6
r TS ARCE ã% TS ARCE ã% TS ARCE ã%
Vans 0 20 83029 82044 −1001 75054 76019 0085 73077 74010 0045
50 195026 195095 0035 179072 180097 0070 173027 175098 1056
100 380034 381065 0034 350026 352036 0060 338067 342060 1016
2 20 92087 90040 −2065 80044 80017 −0033 78061 76076 −2035

50 211061 215007 1064 189073 190053 0042 178051 182035 2015
100 416036 419012 0066 366006 371010 1038 350030 355009 1037
4 20 106093 98084 −7 056 87046 84038 −3052 85057 79057 −7002
50 247046 235038 −4088 203098 200069 −1062 185065 189012 1087
100 474023 458095 −3022 387078 391001 0083 363093 368037 1022
Bikes 0 20 51053 53073 4027 50047 52044 3092 50011 52009 3095
50 114034 118035 3050 112002 115071 3030 111025 114094 3032
100 216081 220059 1075 212049 215091 1061 211006 214047 1062
2 20 74035 70055 −5011 60082 62043 2065 60040 62001 2067
50 151018 156022 3033 135031 140069 3098 134035 139074 4001
100 282083 292011 3028 261096 265086 1049 260017 264007 1050
4 20 104098 92081 −11060 75064 72043 −4025 75014 71093 −4028
50 226016 207067 −8018 165079 165067 −0007 164066 164054 −0007
100 448028 390080 −12 082 322098 315082 −2022 320083 313067 −2023
Notes. Italicized table entries denote solutions that are close to infeasibile for the focal vehicle type. ã% > 0 / ã% < 0: ARCE formula overestimates/underestimates
routing cost compared to TS meta-heuristic.
To correctly account for tour setup cost, Equation (7) and Potvin (2001) conclude that TS meta-heuristics
computes the average number of tours a vehicle starts have proven most effective in the past and have signifi-
within the MST. A vehicle may start more than one cant potential for future improvement. We therefore
tour on average if carrying capacity constraints are choose to adapt a simple but effective TS meta-heuristic
tighter than the global MST constraint. Note that the proposed by Côté and Potvin (2009) as a benchmark
same setup procedures are assumed to be required for our ARCE formula. This meta-heuristic builds on
whether or not the vehicle is fully loaded. the unified TS framework of Cordeau, Gendreau, and
Joint pickup and delivery. Serving pickup and delivery Laporte (1997); Cordeau, Laporte, and Mercier (2001),
demand jointly on a single vehicle tour mainly affects which is known to be effective and efficient in solving
the vehicle’s effective carrying capacity. Suppose that the CVRP despite being relatively simple in structure
demand is identical at each POD in a given city seg- and requiring only a few parameters (which in turn
ment. In that case, if (on average) less space is freed makes it easy to implement). When tested on the well
up by delivery items than is additionally required by known VRP instances of Christofides and Eilon (1969a)
pickup items at each POD, then it is optimal to choose and Golden et al. (1998), the TS meta-heuristic of Côté
the initial load such that the vehicle will be completely and Potvin (2009) reaches solution values that are
filled by pickup items once all initially loaded items within 1% of the best known solutions.
are delivered. Otherwise (i.e., if more space is freed For a range of line-haul distances r, stop densities ,
up by delivery items than is additionally required by and global MST constraints Tmax , we compare the
pickup items), it is optimal to start with a fully loaded routing costs incurred when serving a 1-km2 area
vehicle. We can therefore define the number of PODs of demand with bikes and vans (two vehicle types
that can be effectively served by a vehicle on a single with very different physical and economic properties;
tour as see Table 8 in §5), derived using the TS VRP meta-
v heuristic of Côté and Potvin (2009), with those costs as
in = 0 (8) derived from our ARCE formula. The results, which
max6Di Ei 6V D 71 Pi Ei 6V P 77
are reported in Table 2, show that the routing cost
Quality of approximation. To evaluate our ARCE for- values obtained from our ARCE formula are of high
mula’s quality of approximation, we compare its solu- quality for a broad range of parameter settings. For the
tion values to those obtained from a close-to-optimal scenarios considered in this benchmark, our formula
explicit solution to the underlying capacitated vehicle produces solution values that deviate by less than 10%
routing problem (CVRP). In their reviews of VRP meta- from the results of the TS meta-heuristic of Côté and
heuristics, Laporte et al. (2000) and Gendreau, Laporte, Potvin (2009). The difference between the ARCE and
the TS solutions does not even approach (much less the least cost based on different degrees of consolida-
exceed) that percentage except for scenarios whose tion. Thus, our model allows for direct shipment of
near infeasibility is due to long line-haul distances large items between the CDC and the PODs even as
combined with tight global MST constraints and low small items are shipped indirectly through IDs. The
to medium stop densities. Generally, the quality of only decision criterion for whether an item is shipped
an approximation decreases as the scenario comes through the 2/T versus the 3/T /T network is its physi-
closer to infeasibility. Our results also suggest that cal size. An item size threshold (0 ≤ ≤ 1) defines
the lower percentile of item sizes that are shipped
approximation quality is increasing in the speed and

capacity of the focal vehicle type. through the 3/T /T network; thus, items in the upper
1 − percentile of item sizes are shipped through the
2/T network. Finding an optimal value is a common
4. Optimization Model and relevant problem in freight transportation. The
The 2E-CLRP model presented here works with static, optimal value typically reflects a trade-off between the
deterministic input data. It solves over a discrete solu- higher vehicle utilization (through consolidation) and
tion space with the objective of total cost minimization. shorter line-haul distances under indirect, two-echelon
Our model allows for mixed, heterogeneous fleets of shipment and the lower cost of facilities, consolida-
capacity-constrained vehicles at capacity-constrained tion, and transshipment under direct, single-echelon
facilities. shipment.
In large-scale real-world ULS applications, one must The model presented here allows for potential facility
account for various geographical constraints on the locations being required to accommodate an active
optimal design of a distribution system and also for CDC and/or ID. Thus, it supports either green- or
nontrivial spatial demand distributions. However, nei- brownfield optimization or even no optimization of
ther of these factors can be expressed in closed form. facility locations. Our model can also account for access
We therefore apply a segmentation approach to depict restrictions to certain city areas and for positioning
arbitrary city geographies and demand structures at restrictions on specific vehicle types at certain facility
nearly arbitrary levels of precision and granularity. We locations, which could be used to identify, e.g., low-
divide the city area into a large number of rectangular emission zones, a factor that our analyses does not
city segments that are later considered individually incorporate.
to calculate the cost of serving the PODs in them. 4.1. Single-Stage Optimization
Each city segment is described by a set of parameters The next discussion relies on the additional notation
defining its geographic location, shape, and demand summarized in Tables 3–5. The total average daily
characteristics. Within a segment, PODs are assumed cost of transportation for the described distribution
to be uniformly distributed; this allows us to apply the system can be formulated as the sum of its various
ARCE formula developed in §3. cost components (as defined in Appendix A),
Our model allows vehicle types to differ in their
physical and economic properties. Each type can be K T = K h + K f + K a1 S + K b1 S + K a1 L
assigned two different average speeds for travel in + K S1 a1 + K S1 b1 + K L1 0 (9)
pickup and delivery tours and for travel on line-haul
distances; vehicle types can also be assigned space The optimization problem is then to minimize the
requirements for parking, sorting, and loading as well total daily cost of operation,
as a carrying capacity, a tour setup time, per item min KT (10)
loading and unloading times, average service times per S
Sd1 L D C C1 H
i1 s 1 Sc1 i1 l 1 ad 1 ac 1 ac1 b
stop and per item, hourly cost of operation, a driver’s
wage, and a daily fixed cost. In addition, for each Table 3 Additional Notation Single-Stage Optimization:
vehicle type we can specify a detour factor that reflects Decision Variables
the extent to which the actual distance a vehicle must aCc Binary variable indicating whether or not facility location c
travel (between two given locations) differs from the accommodates an active CDC
corresponding L1 distance. This difference is a function aC1 H
c1 b Binary variable indicating which vehicle type b is used for
of the vehicle’s size and in-/ability to use certain street second-echelon small-item transportation from CDC location c
types or take shortcuts (see Appendix A). aDd Binary variable indicating whether or not facility location d
accommodates an active ID
Under the classification of Laporte (1988), the S
Sd1 i1 s Binary variable denoting whether or not city segment i is served via
2E-CLRP model presented here is a combination of a first-echelon small-item transportation from ID location d using
3/T /T model and a 2/T model. As outlined in §1, our vehicle type s
model can accommodate two parallel network architec- Sc1L i1 l Binary variable denoting whether or not city segment i is served via
tures that share a single CDC. The underlying reasoning first-echelon large-item transportation from CDC location c using
vehicle type l
is that items of different sizes may be distributed at
Table 4 Additional Notation Single-Stage Optimization: Equations (11) ensure that each city segment is served
Endogenous Variables from exactly one ID and one CDC, each using exactly
K a1 S Total daily cost of first-echelon small-item transportation one type of vehicle for (respectively) small- and large-
K a1 L Total daily cost of first-echelon large-item transportation item delivery. Equations (12) ensure that city segments
K b1 S Total daily cost of second-echelon small-item transportation are served only from active ID and CDC locations.
Kf Total facility fixed cost (per day)
Equation (13) ensures that the transportation of small
Kh Total daily handling cost
K L1 Total daily cost of CDC capacity occupied by vehicles for large-item items between the CDC and the IDs is performed
transportation only from an active CDC location using only a single

K S1 a1 Total daily cost of ID capacity occupied by vehicles for small-item vehicle type. Equations (14) allow for the requirement
transportation
K S1 b1 Total daily cost of CDC capacity occupied by vehicles for small-item
(as needed) that certain prespecified ID and/or CDC
transportation locations be active, and Equation (15) ensures that
KT Total daily cost of operation only a single CDC location is activated. Equations (16)
qc1b1bS1 D Number of vehicles of type b to be positioned at facility location c to set a lower and an upper bound on the number of
serve active IDs via second-echelon small-delivery-item
transportation
active IDs being set up. Equations (17) and (18) ensure
qc1b1bS1 P Number of vehicles of type b to be positioned at facility location c to that the maximum available physical space for sorting,
serve active IDs via second-echelon small-pickup-item vehicle loading, and parking is not exceeded at any ID
transportation or CDC location.
qc1L i1 l Number of vehicles of type l to be positioned at facility location c to
Our model can solve extremely large-scale applica-
serve city segment i via first-echelon large-item transportation
qd1S i1 s Number of vehicles of type s to be positioned at facility location d to tions of the 2E-CLRP. For this paper, we solve problems
serve city segment i via first-echelon small-item transportation consisting of up to 400 possible ID locations and 1,600
city segments. Note that each one of these city segments
Table 5 Additional Notation Single-Stage Optimization: itself may contain a large number of PODs.
Exogenous Parameters
4.2. Two-Stage Optimization
bv Physical facility capacity required by a vehicle of type b The model as presented so far computes the cost-
cC Physical facility capacity available at a CDC at location c
dD Physical facility capacity available at an ID at location d optimal configuration of the parallel 3/T /T and 2/T
lv Physical facility capacity required by a vehicle of type l networks and their corresponding vehicle fleets. How-
sv Physical facility capacity required by a vehicle of type s ever, the constraints formulated in Equations (11)–(18)
b D1l Lower bound to the number of active IDs
imply that an optimal solution will require decidedly
b D1u Upper bound to the number of active IDs
zca1 C Binary indicator for whether or not facility location d is required nontrivial trade-offs. The enormous combinatorial com-
to accommodate an active CDC plexity of the solution process is driven mainly by the
zda1 D Binary indicator for whether or not facility location d is required combination of facility capacity constraints at the ID
to accommodate an active ID level and the flexibility to choose among various vehi-
cle types with heterogeneous cost characteristics and
subject to facility capacity requirements. Moreover, the problem
XX S XX L instance size of our model (in terms of the number of
Sd1 i1 s = 11 Sc1 i1 l = 1 ∀ i3 (11)
d s c l
decision variables and constraints to be considered)
S D L C
scales linearly with the number of available vehicle
Sd1 i1 s −ad ≤ 01 Sc1 i1 l −ac ≤ 0 ∀ d1 c1 i1 s1 l3 (12) options. For model instances the size of real-life decision
problems faced by a PO, solving this model requires
X C1 H C
ac1 b −ac = 0 ∀ c3 (13)
b considerable physical resources and time. In practice,
such requirements make scenario-specific optimizations
aDd ≥ za1 D C a1 C
d 1 ac ≥ zc ∀ d1 c3 (14)
X C and large-scale sensitivity analyses impossible. Yet
ac = 13 (15) relaxing the capacity constraints at the ID level while
c eliminating the flexibility to choose among various types
aDd ≥ b D1 l 1 aDd ≤ b D1 u 3 of vehicles can drastically simplify the problem. This
X X
(16)
d d simplification speeds up the solution process so that

X X S
an intermediate, close-to-optimal solution can be more
S v
6Sd1 i1 s qd1
i1 s s 7 ≤ dD ∀ d3 (17) rapidly achieved.
i s
We thus replace the single-stage optimization that
X X L L v respects all model constraints with a two-stage iterative
6Sc1 i1 l qc1
i1 l l 7
i l
model. This new setup is iterative in the sense that
b1 S1 D b1 S1 P C1 H v
the number of active IDs to be located is no longer
C
X
+ max6qc1 b 1qc1 b 7ac1 b b ≤ c ∀ c3 (18) a function of the model’s decision variables. Instead,
b
as outlined in Algorithm 1, the model is repeatedly
S L D C C1 H
Sd1 i1 s 1Sc1 i1 l 1ad 1ac 1ac1 b ∈ 801190 (19) executed with the number of IDs to activate increasing
Table 6 Additional Notation Two-Stage Optimization S D

S̃d1 i − ad ≤ 0 ∀ d1 i3 (23)
C
ā c Binary parameter indicating whether or not facility location c aDd ≥ za1
d 1
D
aCc ≥ za1
c
C
∀ d1 c3 (24)
accommodates the active CDC
aCc = 11 aDd = N̄ d 3
X X
āDd Binary parameter indicating whether or not facility location d (25)
accommodates an active ID c d
k̃cL1 a Minimum cost contribution of serving all city segments from CDC S D C
location c via first-echelon large-item transportation S̃d1 i 1 ad 1 ac ∈ 801 190 (26)
S1 b
k̃ Minimum cost contribution of serving the active IDs from CDC location
c
c via second-echelon small-item transportation Because facility capacities are unlimited, all city
k̃d1S1ia Minimum cost contribution of serving city segment i from ID location d segments can be served at their individual lowest
via first-echelon small-item transportation cost combination of active facility and vehicle type.
K̃ T Total cost objective of the facility location subproblem Because the cost-optimal vehicle type for serving a
N̄ d Number of active IDs to position given city segment from a given facility location is
S
S̃d1 i Binary variable indicating whether or not city segment i is served from no longer linked, through facility capacity limits, to
facility location d
the choice of vehicle type for shipments to and from
other city segments, that type can be identified ex ante
with every iteration. The number of active IDs is thus per Equations (B1) and (B2) in Appendix B. Thus the
exogenously given for every model instance, and the allocation of city segments to IDs follows immediately
optimal number of IDs to activate is determined by and unambiguously from the current choice of active
finding the model instance that generates the least total facilities. Therefore, the first-stage optimization problem
cost. The new model is a two-stage model in the sense reduces to a location-allocation problem.
that it relies on an approximate interim solution to the The vehicle routing subproblem. The optimal facility
2E-CLRP. The ID locations given by this first stage of locations identified by the first-stage reduced opti-
optimization are then used as the starting point for mization model (represented by the decision variables
a more precise routing decision, which is, however, aDd and aCc ) are now taken as fixed exogenous input
separated from the facility location decision at this parameters for the second-stage optimization problem;
second stage. hereafter, we will use āDd and āCc to denote these param-
eters. The optimization objective is again to minimize
The two-stage model requires some minor modifi-
the total daily cost of operation, but this time while
cations to our model assumptions. Our results will
respecting all facility capacity constraints and retaining
be valid only if we assume homogeneous facility
full flexibility to choose among various vehicle types.
characteristics: homogeneous fixed cost, fdD = f¯D and
Formally, the objective is to find
fcC = f¯C ; and homogeneous facility capacities, dD = ¯D
and cC = ¯C . The model still allows for heterogeneously min KT (27)
C1 H
sized facilities by defining multiple potential facility S
Sd1 L
i1 s 1 Sc1 i1 l 1 ac1 b
locations with identical geographic coordinates. A XX S

XX L
subject to Sd1 i1 s = 11 Sc1 i1 l = 1 ∀ i3 (28)
larger facility is thus represented by multiple identical s c
d l
facilities being activated at the same location, which S D L C
also reflects the notion of fixed cost scaling in facility Sd1 i1 s ≤ ād 1 Sc1 i1 l ≤ āc ∀ d1 c1 i1 s1 l3 (29)
capacity. The extra notation we need in the following X C1 H
ac1 b = āCc ∀ c3 (30)
is summarized in Table 6. b
The facility location subproblem. In the first stage of
X X S

S v
the two-stage optimization procedure, our objective 6Sd1 i1 s qd1
i1 s s 7 ≤ dD ∀ d3 (31)
is to minimize the total daily cost of operation for a i s
fixed number of active IDs, N̄ d , while ignoring facil-

X X L L v
ity capacity constraints. The corresponding objective 6Sc1 i1 l qc1
i1 l l 7
i l
function is defined as follows:
b1 S1 D b1 S1 P C1 H v C
X
X X S S1 a X C S1 b + max6qc1 b 1 qc1 b 7ac1 b b ≤ c
K̃ T = S̃d1i k̃d1 i + ac 4k̃c + k̃cL1 a 50 (20) b
d i c ∀ c3 (32)
S L C1 H
Hence, the reduced optimization problem can be writ- Sd1 i1 s 1Sc1 i1 l 1ac1 b ∈ 801190 (33)
ten as
The second-stage optimal solution may deviate from
min K̃ T (21) the optimal solution to the first-stage problem. Satis-
S 1 aD 1 aC
S̃d1 i d c fying the newly imposed facility capacity constraints
X S may require that some city segments be served from
subject to S̃d1i = 1 ∀ i3 (22)
d
different active facility locations or using a different
vehicle type, and these reallocations may lead to higher Table 7. They were conducted with AIMMS 3011 × 64 on
costs. If N̄ d is chosen too low, in other words, such that an Intel Core i5-2520M CPU 2.5 GHz running a 64-bit
the entire demand cannot be served while respecting operating system with 8 GB RAM. Note that instance
all facility capacity constraints, then the second-stage size in terms of decision variables is directly related to
problem is infeasible and N̄ d must be increased. the problem dimensions, which can be given using
the following notation: nPOD /nFAC /nVS /nVL , where nPOD
Algorithm 1 (Two-stage optimization process)
denotes the number of city segments, nFAC is the num-
1: Set initial value for N̄ d ; ber of potential facility locations, nVS is the number of
2: Set iteration termination threshold x ∈ 821 31 0 0 09; vehicle types for first-echelon transportation, and nVL is
3: while N̄ d ≤ number of ID locations and K T has the number of vehicle types for second-echelon trans-
not increased for x iterations in a row do portation. We find that, for all considered scenarios, the
4: while no feasible solution to second-stage two-stage optimization heuristic produces results that
problem do are sufficiently close (for practical purposes) to those
5: Solve first-stage problem in obtained via single-stage optimization. The maximum
Equations (21)–(26); deviation of the two-stage solution values from the
6: āDd = aDd ; āCc = aCc ; single-stage alternative is 0.88%, a percentage that
7: Solve second-stage problem in is decreasing in the size of the model instance. The
Equations (27)–(33); reduction in computation time needed to solve our
8: if second-stage problem infeasible then 2E-CLRP using our two-stage heuristic as opposed to
9: Increase N̄ d the single-stage optimization increases exponentially
10: end if with the size of the problem instance. The two-stage
11: end while; heuristic is thus highly effective in obtaining solutions
C1 H
12: return 4N̄ d 1 K T 1 āDd 1 āCc 1 Sd1
S L
i1 s 1 Sc1 i1 l 1 ac1 b 5 that are close to the optimum but which require limited
13: end while. computational effort. Furthermore, the structure and
Algorithm 1 summarizes the interplay between the underlying logic of our iterative two-stage solution
first- and second-stage subproblems. After each itera- approach can be easily accessed and comprehended by
tion, a result vector is returned (see line 12). When the practitioners.
algorithm terminates, the result vector with the lowest
K T -value characterizes the cost-optimal system design. 5. Practical Application
For the reasons outlined in §1, La Poste is currently
4.3. Quality of Heuristic Solution considering the strategic option of moving into the
Our analyses in §4.1 showed that the computational field of ULS as a central consolidator for shipments of
effort of solving the single-stage optimization model is mail- and parcel-sized items in the largest French cities.
primarily driven by the problem instance size (in terms By using its current facilities and investing in new
of decision variables) and the shape of the underlying infrastructure, La Poste seeks to create a distribution
demand distribution across the city area. Therefore, system with up to two layers of consolidation.
when evaluating the quality of our two-stage opti- This venture requires that La Poste determine whether
mization heuristic in terms of (i) the proximity of its shipping all items through a single network infrastruc-
cost results to those obtained from the single-stage ture (with one or two layers of consolidation) would
optimization approach, and (ii) reduced solution times, be less costly than shipping items that exceed a certain
we use a two-factorial experiment to compare the size threshold directly between the CDC and the rele-
approaches. As for problem instance size, we consider vant PODs while using indirect shipment via IDs (as a
four possible levels that represent the instance sizes of second layer of consolidation) for the remaining items.
small- to large-scale real-world applications. As to the We can use our 2E-CLRP model to answer this question
demand distribution factor, we consider three possible and to determine the distribution system’s cost-optimal
levels: uniformly distributed demand; a bell-shaped design in terms of the number and locations of IDs to
demand distribution; and a distribution with multi- activate, the location of the CDC, the assignment of
ple, randomly positioned demand extrema. Demand city segments to facilities, the positioning of vehicles of
distribution in real-world cities can be viewed as a various types at the active facilities, and the assignment
mixture of the latter two cases, since most cities have of such vehicles to serve specific city segments.
multiple demand centers and since demand almost For its ULS initiative, La Poste is considering four
always declines smoothly with increasing distance from different vehicle types, whose specific characteristics are
one of these centers. The resulting 4 × 3 = 12 scenarios summarized in Table 8. However, we also analyze the
that we consider cover a spectrum of problem instances effects of replacing the internal combustion engine (ICE)
that represent the varied real-world cases to which our vans and large-capacity bikes assumed in our base-
model can be applied. Our analyses are summarized in case scenario by electric vehicles (EVs) and standard
Table 7 Scenarios for Heuristic Performance Analysis
Computation time (sec.)
Instance dimensions Decision variables Stop density distribution (a) Single-stage (b) Two-stage Deviation in solution value (%)
100/25/3/1 101050 (i) Uniform 2302 103 0088

(ii) Bell-shaped 8605 10309 0005
(iii) Random extrema 9709 2602 0043
400/100/3/1 1601200 (i) Uniform 1148101 2605 0036

(ii) Bell-shaped 6609 2108 0000
900/225/3/1 8101450 (i) Uniform 3110606 4308 0000
(ii) Bell-shaped 3115208 57302 0000
11600/400/3/1 215601800 (i) Uniform 6100000a 3111400 0000
(ii) Bell-shaped 6100000a 2134501 0000
(iii) Random extrema 6100000a 96408 0000
a
Terminated prematurely after 6,000 seconds because of time constraints.
Table 8 Vehicle Types and Characteristics
Pedestrian Bike Van Truck
Transport between CDC and PODs x x x

Transport between ID and PODs x x x
Transport between CDC and IDs x
Speed (line-haul and in-tour) Very low Moderate High High
Carrying capacity Very small Small Large Very large
Operating cost per hour Very low Very low High Very high
Service time per stop Very short Short Moderate Very long
Equipment fixed cost Very low Low High Very high
Detour factor [agility 4−5, size 4+5] Very low Low High Very high
Facility capacity requirement Very low Low High Very high
Note. An “x” indicates vehicle type availability for transport on this leg.
postal bikes, respectively. We assume a fixed ratio of small- and large-item pickup and delivery, then some
pickup demand to delivery demand, PD = 5%; this PODs will be served by both networks. It follows
figure matches the current ratio within La Poste’s mail that the overall number of stops in a given segment,
business. We shall next present results obtained from Ai 4î S + î L 5, will always be greater than or equal to the
analyzing a stylized and perfectly rectangular 400-km2 number of stops in a single-network setup, Ai i . There
city subdivided into 1,600 homogeneous city segments is a more detailed discussion of both effects in the
and as many as 400 potential facility locations that in online appendix (available as supplemental material at
all cases are evenly distributed. Then we will apply http://dx.doi.org/10.1287/trsc.2015.0624).
our model to real-world design problems in the cities Relative vehicle competitiveness. We use the vehicle
of Nantes and Chambéry. characteristics and cost parameters provided by La Poste
to analyze the relative competitiveness of the different
5.1. Analyses of the Stylized Scenario available vehicle types (excluding trucks). We ana-
Stop density dilution and stop multiplication. As a result, lyze the cost of serving a single, 500 × 500-meter city
maintaining two parallel network infrastructures (i.e., segment from a given facility for different levels of
0 < < 1) can never be a cost-optimal solution because stop density, items per stop, and maximum allowed
a cost minimum can occur only at the extreme ends service time. To account for the implications of differ-
of the concave total cost curve ( = 0 or = 1). The ent types of items to be shipped, in the analyses to
concavity of the total cost of operation is mainly due to follow we also distinguish between a postal case (min-
two effects. First, stop density dilution arises because, for imum/maximum/expected item size: 0.0/34.6/13.2
0 < < 1, overall demand is split among two parallel liters) and a logistics case (12.0/44.6/28.3 liters).
network infrastructures. Thus, the relevant stop density Figure 1 depicts the zones of cost optimality in both
for each distribution network is less than the global cases for the three available vehicle types and for
stop density . Second, stop multiplication arises because, global MST constraints of two and four hours. For a
if there are two parallel network infrastructures for given city segment, the graph shows the cost-optimal
"IKEOPTIMALITYFRONTIERTMAXH 6ANOPTIMALITYFRONTIERTMAXH
"IKEOPTIMALITYFRONTIERTMAXH 6ANOPTIMALITYFRONTIERTMAXH
%;N D= %;N D= %;N D=

!
"
r;KM=
r;KM=
r;KM=

#

$

;STOPSKM= ;STOPSKM= ;STOPSKM=
A 0OSTALCASE
%;N D= %;N D= %;N D=

r;KM=
r;KM=
r;KM=

;STOPSKM= ;STOPSKM= ;STOPSKM=
B ,OGISTICSCASE
Figure 1 Zones of Cost-Optimality for Different Vehicle Types
vehicle choice for every combination of stop density Note that, above a certain critical number of items per
(on the x-axis) and city segment distance from the stop, a zone of optimality for bikes no longer exists.
serving facility (on the y-axis). In the top left case of The lower part of Figure 2 shows the impact of
Figure 1, zone A is where vans are cost optimal for having only electric instead of ICE vans available in
Tmax = 2 h and Tmax = 4 h. In zone B, vans remain cost the logistics case. Similar results can be obtained for
optimal for Tmax = 2 h while bikes are cost optimal the postal case. From a cost perspective, EVs offer
for Tmax = 4 h. In zone C, bikes are cost optimal for a much lower hourly cost of operation than their
Tmax = 2 h and Tmax = 4 h; in zone D, bikes remain cost ICE counterparts. However, the vehicle fixed cost
optimal for Tmax = 4 h, but pedestrians are cost optimal incurred by EVs are significantly higher than those
for Tmax = 2 h. incurred by ICE vehicles. One effect of the deviant
As can be seen from Figure 1, bikes are the strongly cost characteristics of EVs is an extreme sensitivity of
dominant vehicle type under the basic parameters optimal zone size, for all of the delivery modes, to
provided by La Poste. That being said, changes to those changes in the number of items per stop. Whereas
parameters can have significant effects on the relative bikes are still the dominant vehicle type at the level of
competitive position of the different vehicles. For the one delivery item per stop, they are almost entirely
logistics case, the upper part of Figure 2 shows the superseded by EVs at the level of five delivery items
effect on relative vehicle competitiveness of having per stop (given a four-hour global MST constraint).
only standard postal bikes (with 160 liters of carrying Optimal network design. As stated above, cost optima
capacity) available instead of the large-capacity bikes can only occur at the two extreme ends of the allowable
(900 liters) assumed in the base case. Similar results values for , i.e., for a 2/T setup ( = 0) or a 3/T /T
(not reported here) are obtained for the postal case. setup ( = 1) of the distribution system. Thus, we next
We observe that, with this reduced carrying capacity, focus on determining which of the two network config-
bikes remain the cost-optimal modal choice only if urations is cost-optimal under which circumstances.
the city segment is characterized by very low stop We assume stop density to be uniformly distributed
density and close proximity to its serving facility. For across the stylized city area. Figure 3 illustrates, for
most density-distance combinations, vans are now the the postal and logistics cases, the cost-optimal choice
cost-optimal vehicle choice. Yet when a city segment between a 2/T and 3/T /T setup under different levels
is fairly close to the serving facility, pedestrians have of stop density, different expected numbers of delivery
gained significantly in importance as delivery agents. items per stop, and varying global MST constraints.
Bike optimality frontier, Tmax = 2 h Van optimality frontier, Tmax = 2 h
Bike optimality frontier, Tmax = 4 h Van optimality frontier, Tmax = 4 h
E[N D ] = 1 E[N D ] = 3 E[N D ] = 5

2 2 2
r [km]
r [km]
r [km]
1 1 1
0 0 0
0 50 100 150 0 50 100 150 0 50 100 150
[stops/km2] [stops/km2] [stops/km2]
(a) Small bike case
E[N D ] = 1 E[N D ] = 3 E[N D ] = 5

6 6 6
4 4 4
r [km]
r [km]
r [km]
2 2 2
0 0 0
0 50 100 150 0 50 100 150 0 50 100 150
(b) Electric van case
Figure 2 Zones of Cost-Optimality for Different Vehicle Types: Alternative Technology Options
Our analyses show that the tighter the global MST this exponential shape is usually due to the optimal
constraint, the higher is the critical expected number network configuration switching from a 2/T setup to a
of delivery items per stop above which a 2/T setup 3/T /T setup (or vice versa) above or below a certain
becomes optimal, and the lower is the critical stop critical level of required service time.
density below which a 2/T setup becomes optimal. Figure 5 illustrates the cost-optimal number of IDs
Given the logistics case’s larger expected item size and to be located in the city area for both the postal case
longer stop- and item-specific service times, a 3/T /T and the logistics case. If a 3/T /T setup is the cost-
setup is optimal for lower levels of stop density and optimal network configuration, then the cost-optimal
for higher expected numbers of delivery items per stop number of IDs scales almost linearly with the stop
than in the postal case. density. Observe that the slope of the cost-optimal
In Figure 4, the increase in total transportation cost is number of IDs over the stop density increases less than
plotted as a function of maximum allowed service time proportionally with the expected number of items per
relative to the base global MST constraint of five hours stop. If a 2/T setup is cost optimal, then no IDs are
for varying levels of stop density and varying numbers required.
of items per stop. Combining this analysis with our Optimal fleet composition. For the postal and logistics
findings from Figure 3, we conclude that, provided cases, Figure 6 plots optimal fleet composition as a
the cost-optimal network design remains a 2/T setup function of stop density for varying levels of maximum
while the MST constraint is relaxed (resp., tightened), allowed service time and varying numbers of delivery
the resulting relative cost savings (resp., increases) are items per stop. As indicated by Figure 1, pedestrians
independent of the stop density. We also see that, as play no role in the base-case setup of the postal or
long as the cost-optimal network design remains a logistics cases. The optimal numbers of the remaining
3/T /T setup, the cost savings (resp., increases) from vehicle types tend to be linearly increasing in the stop
relaxing (resp., tightening) the service time constraint density.
are decreasing in the stop density. For any given stop Also vans are seldom used under tight global MST
density, the cost increase relative to the base global MST constraints (here, e.g., Tmax = 25 h). Only in the logistics
constraint of five hours increases exponentially as the case do we see vans being used, along with bikes,
global MST constraint is tightened. Any deviation from when the expected number of delivery items per stop
∗ = 0.0 (2/T) for all Tmax

∗ = 0.0 (2/T) for Tmax ≥ 3 h, ∗ = 1.0 (3/T/T) otherwise
∗ = 1.0 (3/T/T) for all Tmax
Postal case Logistics case

5 5
4 4
3 3
ND ND
2 2
1 1
0.5 5 15 25 50 75 100 125 0.5 5 15 25 50 75 100 125

[stops/km2] [stops/km2]
Figure 3 Optimal Network Design Under Various Parameter Settings
= 0.5 [1/km2] = 50 [1/km2]

= 15 [1/km2] = 100 [1/km2]
E[ND] = 1 E[ND] = 3 E[ND] = 5

40 40 40
Cost increase [%]
Cost increase [%]
Cost increase [%]

30 30 30
20 20 20
10 10 10
0 0 0
5 4 3 2 5 4 3 2 5 4 3 2
Tmax [h] Tmax [h] Tmax [h]
(a) Postal case
E[ND] = 1 E[ND] = 3 E[ND] = 5

40 40 40
Cost increase [%]
Cost increase [%]
Cost increase [%]

30 30 30
20 20 20
10 10 10
0 0 0
5 4 3 2 5 4 3 2 5 4 3 2
Tmax [h] Tmax [h] Tmax [h]
(b) Logistics case
Figure 4 Relative Increase in Total Cost from Reducing the Maximum Allowed Service Time
is low. The optimal number of bikes increases less than of delivery items (EN D ) exceeds a certain critical level
proportionally with the expected number of delivery or the stop density falls below a certain critical level
items per stop. For looser global MST constraints (here, (see Figure 3).
e.g., Tmax = 5 h), we see a significant shift from the Robustness of optimal network design to changes in the
use of bikes to vans once the cost-optimal network marketplace. Only bikes being used to provide indirect
configuration changes from a 3/T /T setup ( = 1) to shipment in a 3/T /T network setup, as just described, is
a 2/T setup ( = 0). For sufficiently high values of Tmax , observed only near the cost optimum. As indicated in
that change occurs when either the expected number Figure 7, first-echelon transportation in a 3/T /T setup
Tmax = 2 h Tmax = 4 h
E[N D] = 1 E[N D] = 3 E[N D] = 5

100 100 100
75 75 75
IDs
IDs
IDs
50 50 50
25 25 25
0 0 0
0 50 100 0 50 100 0 50 100
2] [stops/km2]
[stops/km [stops/km2]
(a) Postal case
E[N D] = 1 E[N D] = 3 E[N D] = 5

100 100 100
75 75 75
IDs
IDs
IDs
50 50 50
25 25 25
0 0 0
0 50 100 0 50 100 0 50 100
(b) Logistics case
Figure 5 Optimal Number of IDs (Standardized)
cannot be provided solely by bikes when there are few reducing the carrying capacity of bikes from 900 liters
depots; such facilities have limited physical capacity. to 160 liters leads not only to bikes being replaced by
The fewer the depots, the more bikes must be replaced other vehicle options but also to a complete shift in the
by pedestrians to avoid exceeding the capacity limits optimal facility network design. In particular: whereas
of installed depots. Accordingly, the overall capacity a 3/T /T setup is the cost-optimal network configuration
utilization of these depots is nearly 100%. for many combinations of , EN D , and Tmax when
Note that, when the number of depots is cost- large-capacity bikes are available (see Figure 3), a 2/T
optimal, the overall depot capacity utilization is clearly setup is cost optimal across all combinations of the
below 100%. In the example depicted in Figure 7, model parameters we consider when large-capacity
overall capacity utilization at the optimal number of bikes are replaced by their small-capacity alternatives.
35 depots is only about 71%. Given that the total cost Thus, in the absence of large-capacity bikes, demand
curves flatten out to the right of the optimal number is served almost exclusively by vans. Only a few city
of installed depots, it would not cost much to install segments in proximity to the CDC are served by pedes-
additional excess capacity. Significant excess capacity trians or bikes, which agrees with our findings on
at the facility level is generally an important factor for relative vehicle competitiveness as depicted in Figure 2.
cost-optimal network design, especially as regards the
robustness of the optimal system design obtained from 5.2. Analyses of Two Real-World Cities
our model, which is based on static and deterministic The city of Chambéry. Chambéry is a small city in
data, to the demand variation and pronounced demand southeast France with some 60,000 inhabitants. As
peaks that are likely to occur in a dynamic and stochas- expected, our analyses reveal that the city’s small
tic reality. For example, such excess capacity would size and small absolute demand dictate that the cost-
enable POs to allocate more vehicles (or to reallocate optimal network design is a 2/T setup, regardless of
existing vehicles) to facilities on a short-term basis the values used for the remaining model parameters
without encountering facility capacity constraints. (e.g., maximum allowed service time).
Effect of vehicle parameter changes. The optimal system Our analyses also show that the optimal fleet com-
design is directly influenced by shifts in the rela- position for the city of Chambéry is mostly in line
tive competitiveness of different vehicle types due to with that suggested by our stylized scenario. Figure 8
changes in their technical and economic parameters. depicts, for the postal and logistics cases, the optimal
For example, we observe in the logistics case that fleet composition for Chambéry under different global
Tmax = 2 h Tmax = 4 h
E[N D] = 1 E[N D] = 3 E[N D] = 5

100 100 100
75 75 75
Bikes
Bikes
Bikes
50 50 50
25 25 25
0 0 0
0 25 50 75 100 125 0 25 50 75 100 125 0 25 50 75 100 125
[stops/km 2] [stops/km2] [stops/km2]
E[N D] = 1 E[N D] = 3 E[N D] = 5

100 100 100
75 75 75
Vans
Vans
Vans
50 50 50
25 25 25
0 0 0
0 25 50 75 100 125 0 25 50 75 100 125 0 25 50 75 100 125
[stops/km2] [stops/km2] [stops/km 2]
(a) Postal case
E[N D] = 1 E[N D] = 3 E[N D] = 5

100 100 100
75 75 75
Bikes
Bikes
Bikes
50 50 50
25 25 25
0 0 0
0 25 50 75 100 125 0 25 50 75 100 125 0 25 50 75 100 125
2]
[stops/km2] [stops/km [stops/km 2]
E[N D] = 1 E[N D] = 3 E[N D] = 5

100 100 100
75 75 75
Vans
Vans
Vans
50 50 50
25 25 25
0 0 0
0 25 50 75 100 125 0 25 50 75 100 125 0 25 50 75 100 125
(b) Logistics case
Figure 6 Standardized Optimal Vehicle Counts
Total cost of operation Pedestrians

Facility capacity utilization Bikes
100
Number of vehicles
Utilization [%]
90
Cost
80
70
60
20 25 30 35 20 25 30 35
Number of intermediate depots Number of intermediate depots
Figure 7 Fleet Composition and Facility Utilization as a Function of Number of Depots (Cost Optimum: 35 Depots)
Chambéry Nantes
100 100
Tmax = 2 h
75 75 Tmax = 4 h
Bikes
Bikes
50 50
25 25
0 0
50 100 150 200 50 100 150 200

Percent of base case Percent of base case
Chambéry Nantes
100 100
75 75
Vans
Vans
50 50
25 25
0 0
50 100 150 200 50 100 150 200
(a) Postal case
Chambéry Nantes
100 100
75 75
Bikes
Bikes
50 50
25 25
0 0
50 100 150 200 50 100 150 200
Chambéry Nantes
100 100
75 75
Vans
Vans
50 50
25 25
0 0
50 100 150 200 50 100 150 200
(b) Logistics case
Figure 8 Optimal Fleet Composition Under Various Parameter Settings
MST constraints and varying levels of actual demand, The city of Nantes. Nantes is a city in northwest
in terms of stop density relative to La Poste’s current France. With approximately 540,000 inhabitants in the
forecast, which is the base case here. In Chambéry, we metropolitan area, it is among the 10 largest cities
do not observe pedestrians being used as agents of in the country. We are surprised to find that, despite
delivery. In the postal case, slightly more bikes than the significant size of Nantes and the existence of
vans are used; in the logistics case, vans are clearly the some areas in the city characterized by very high
dominant vehicle type. This difference can be explained demand, a 2/T setup is still the cost-optimal network
intuitively by the differences in expected item size and design for all of the parameter configurations we
service times per stop and per item between the postal consider. Apparently, since the model is designed to
case and the logistics case. Moreover, the logistics case determine only whether an entire city area would
is based on about five expected delivery items per be better served by a 2/T or an 3/T /T network, the
stop, which is almost double the value assumed for benefits of a 3/T /T setup in areas of high stop density
the postal case. cannot compensate for that setup’s cost disadvantages
in the vast areas of low stop density. Furthermore, high always a binary decision between competing network
stop densities in Nantes often go hand in hand with architectures. We show, in addition, that not only the
high numbers of items per stop (e.g., owing to densely cost-optimal fleet composition but also the cost-optimal
populated, high-rise office buildings in the city center); network design strongly depends on the characteristics
these characteristics favor a 2/T setup, as indicated of the available vehicle types. In particular, carrying
by our preceding analyses of the stylized scenario. capacity has an especially significant impact on the
The example of Nantes thus shows that it would be a relative competitiveness of different vehicle options.
valuable extension of our current model to allow the Another finding is that, at its cost-optimal config-
decision between direct and indirect shipment to be uration, the distribution system design proposed by
made on a subcity area level, ideally at the city segment our model exhibits significant excess capacities at the
level. Such a shift in decision-making level would facility level. This excess capacity can be increased
enable the PO to serve areas with low stop densities further at low cost, mainly because the total cost of
via direct shipment while exploiting the cost benefits operations is relatively insensitive to increases in the
of indirect shipment in areas of higher demand. number of facilities above the cost-optimal level. Given
Our observations about the optimal fleet composition the long-term, strategic time horizon of facility invest-
for Nantes are mostly in line with what we find for ments, the existence of such excess capacities should be
Chambéry. Whereas in the postal case bikes and vans highly valued by the PO because it implies that the cost
are used to about the same extent (in terms of number optimality of the infrastructure design suggested by our
of vehicles used), vans are the predominant vehicle type model is similarly insensitive to demand fluctuations
in the logistics case for the reasons already mentioned in the marketplace.
(see also Figure 8). Allowing for the decision on direct versus indirect
shipment to be made at the city segment level would
be a useful modification of our model, since we could
6. Conclusions and Limitations better account for local differences in demand charac-
The inherent complexity of multi-echelon LRP models teristics. The model presented here makes this decision
with modal choice and limited vehicle and facility at the city level and thus seeks a network configuration
capacities, when combined with the massive size of that works best across all city segments on average.
problem instances when the context is real-world ULS Because our model is static and deterministic, our
applications, would render these optimization problems analyses do not explicitly incorporate the dimensions
virtually intractable if they depended on explicit routing of uncertainty or risk that would naturally attend
algorithms. By developing a closed-form approximation La Poste offering any extensions of its service. Because
for optimal routing cost that accounts not only for uncertainties can be attributed to possible changes in
a global MST constraint but also for a broad range the marketplace and also to the tightening of regulatory
of physical and economic vehicle characteristics, we standards, it is of high practical and academic rele-
construct a 2E-CLRP model that yields high-quality vance to develop multi-echelon capacitated LRP models
approximations yet which can be solved (using numer- that give more consideration to stochasticity. Toward
ical optimization) within a reasonable time even for that end, an especially promising methodology is
large-scale real-world applications. We also develop that of robust optimization in which “uncertainty sets”
an optimization heuristic that further reduces the replace prior probability distributions as an input. This
computation time by splitting the optimization prob- approach could help POs determine a network design
lem into two interdependent subproblems. We show and fleet composition that, rather than being derived as
numerically that the loss in solution precision due to optimal for a particular scenario, works reasonably well
this simplification is negligible and decreasing in the over a broad set of uncertainty realizations (Ben-Tal and
size of the problem instance. Nemirovski cf. 1998; Cornuejols and Tütüncü 2007).
Comprehensive analyses guided by our 2E-CLRP
model using real-world data and parameters provided
Supplemental Material
by La Poste show that the configuration of a cost-optimal Supplemental material to this paper is available at http://dx
ULS infrastructure and fleet design strongly depends .doi.org/10.1287/trsc.2015.0624.
on the considered city’s specific demand characteristics
and on the intended service level (in terms of maximum
Acknowledgments
allowed service time). We also show that it is never The authors thank Le Groupe La Poste and in particular
cost optimal to simultaneously serve a given area of Mr. Alain Roset for contributing to this research through the
demand with two parallel network architectures for provision of detailed, real-world data, and for numerous
different item classes. Therefore, finding the right level fruitful discussions on the modeling approach, assumptions,
of consolidation to serve a given area of demand is and findings presented here.
Appendix A. Transportation Cost Model Pr4NiD1S = n NiP 1S > 0∪NiD1S > 05

Handling costs occur at the IDs for small items only and also
Pr4NiD1S = n5
at the CDC for all items. Total handling costs can therefore = 1
be defined as Pr4NiP 1S > 05+Pr4NiD1S > 05−Pr4NiP 1S > 05Pr4NiD1S > 05
Kh =
X
Ai îS 4Pi 1 S + D1 S
54cDh + cCC
h
5 Pr4NiP 1L = n NiP 1L > 0∪NiD1L > 05
i
i
Pr4NiP 1L = n5
= 1
Ai îL 4Pi 1 L + D1 L h
X
+ i 5cCC 0 (A1) Pr4Ni > 05+Pr4Ni > 05−Pr4NiP 1L > 05Pr4NiD1L > 05
P 1L D1L
i
Pr4NiD1L = n NiP 1L > 0∪NiD1L > 05
Here the stop densities for small- and large-item demand are
represented by two random variables that follow the respec- Pr4NiD1L = n5
1 S 1 L = 1
tive binomial processes iS ∼ B41 pi 5 and iL ∼ B41 pi 5, Pr4NiP 1L > 05+Pr4NiD1L > 05−Pr4NiP 1L > 05Pr4NiD1L > 05
with respective success probabilities
where the probabilities of having n small or large pickup or
1 S delivery items at a stop in city segment i are
41 − piP 1 S 5n Pr4NiP = n5
X
pi = 1 −
n

q
Pr4NiP 1 S = n5 = Pr4NiP = n54piP 1 S 5n 4piP 1 L 5q−n
X
1
n
41 − piD1 S 5m Pr4NiD
X
· = m5 1 (A2) qq≥n
m
D1 S D D1 S n D1 L q−n q
X
Pr4Ni = n5 = Pr4Ni = n54pi 5 4pi 5 1
pi
1 L
= 1−
X
41 − piP 1 L 5n Pr4NiP = n5 qq≥n
n
n (A8)
q
Pr4NiP 1 L = n5 = Pr4NiP = n54piP 1 L 5n 4piP 1 S 5q−n
X
1

41 − piD1 L 5m Pr4NiD = m5 0 n
X
· (A3) qq≥n
m
q
Pr4NiD1 L = n5 = Pr4NiD = n54piD1 L 5n 4piD1 S 5q−n
X
The probabilities of an item that is to be picked up (super- 0
n
script P ) or delivered (superscript D) in city segment i being qq≥n
small (superscript S) or large (superscript L) are defined as y

We define the physical area of city segment i as Ai = ãxi ãi ,
follows:
and total facility fixed costs are defined as
piP 1S = pi1h 1 piD1S =
X P X D
pi1h 1
K f = aD D
X X C C
hh ≤ hh ≤ d fd + a c fc 0 (A9)
(A4) d c
piP 1L = P
= 1−piP 1S 1 piD1L = D
= 1−piD1S 1
X X
pi1h pi1h
hh > hh >
The cost of transporting small items between IDs and
PODs is given as
with the item size threshold value = minh 6h 7+4maxh 6h 7−
a1 S
K a1S =
XXX S
minh 6h 75. We use h to denote the average physical size of Sd1 i1 s kd1 i1 s 1 (A10)
d i s
items in size class h.
The expected stop densities for small- and large-item where the cost contribution of serving city segment i from
demand are, respectively, a given depot location d using a given vehicle type s for
1 S 1 L
small-item pickup and delivery is
îS = E6iS 7 = i pi 1 îL = E6iL 7 = i pi 1 (A5)
a1 S S
S s S v o
kd1 i1 s = qd1 i1 s md1 i1 s ts ws + 2md1 i1 s rd1 i 4ws + cs 5/ss
with the average number of pickup or delivery items per S S v v

+ md1 i1 s nd1 i1 s ëi1 s 4ws + cs 5 + fs 0 (A11)
stop along a small- or large-item first-echelon tour in city
segment i being This formulation is based on the definitions of: qd1 S
i1 s , the
number of vehicles of type s required to serve city segment i
Pi 1 S = n Pr NiP 1 S = n NiP 1 S > 0 ∪ NiD1 S > 0 1
X
n
from depot location d for small-item pickup and delivery;
(A6) r1 S
Pi 1 L = n Pr NiP 1 L = n NiP 1 L > 0 ∪ NiD1 L > 0 1 d1 i1 s , the real vehicle capacity of a vehicle of type s in terms
X
n of average number of stops that can be performed within the
maximum allowed service time when serving city segment i
D1 S
n Pr NiD1 S = n NiP 1 S > 0 ∪ NiD1 S > 0 1
X
i = from depot location d for small-item pickup and delivery;
n
(A7) Sd1 i1 s , the average number of full vehicle capacity utilization
D1 L
= n Pr NiD1 L = n NiP 1 L > 0 ∪ NiD1 L > 0 0
X
i
n tours that a single vehicle of type s can perform within the
maximum allowed service time when serving city segment i
The probabilities of having n small or large pickup or delivery from intermediate depot location d for small-item pickup
items at a stop in city segment i when that stop is part of a and delivery; ti11sS , the time required to perform a single
small-item first-echelon tour are full-vehicle capacity tour with a vehicle of type s given the
stop density of city segment i for small-item pickup and
Pr4NiP 1S = n NiP 1S > 0∪NiD1S > 05
delivery; ëi1 s , the average time required by a vehicle of
Pr4NiP 1S = n5 type s to serve a single stop and move on to the next stop
= 1 r
Pr4NiP 1S > 05+Pr4NiD1S > 05−Pr4NiP 1S > 05Pr4NiD1S > 05 given the stop density of city segment i; td1 i1 s , the average
time required by a vehicle of type s to overcome the line-haul where the cost contribution of serving the IDs from a given
distance between ID location d and city segment i; ti1b1sS , the CDC location c using vehicle type b is defined as
cumulative time required to load (resp., unload) the full
b1 S b1 S1 D b1 S1 P
4wb + cbv 5Tmax
S1 b

vehicle capacity at the beginning (resp., end) of the tour for a kc1 b = qc1 b + qc1 b
vehicle of type s given the stop density of city segment i b1 S1 D b1 S1 P v
+ max qc1 1 qc1 b fb 0 (A13)
for small-item pickup and delivery; i1n1sS , the nominal full b
vehicle capacity in terms of the average number of stops This equality is based on definitions that are broadly in
that can be performed on a single tour of a vehicle of type s
line with those already introduced. Additional definitions
when jointly considering small-item pickup and delivery

include: N d , the number of active IDs; rc1d , the line-haul
for a given stop density of city segment i; ãPiS , the average
distance between CDC location c and ID location d; and AT ,
vehicle capacity in terms of volume that is filled up by the
the physical area of the entire city. We can therefore write
average number of small items that are picked up at a single
stop in city segment i; ãDiS , the average vehicle capacity Nd
b1S1D r1S1b1D
Nd = aD = bn1S1b1D S1b1D
X
in terms of volume that is freed by the average number qc1b = r1S1b1D
1 d1 c1b c1b 1
c1b d
of small items that are delivered at a single stop in city
segment i; Ei1 P 1 S , the expected size (in terms of volume) S1b
Tmax
of a small item to be picked up in city segment i; Ei1 D1 S , S1b1D
c1b = 1 tb1S1b1D = bn1S1b1D ëb 1
tb1S1b1D +tbs +2tc1b
r
+2tbb1S1b1D
the expected size (in terms of volume) of a small item to be
delivered in city segment i; pi1P 1hS , the probability of a small D
5ob
P
4 d rc1d /N
item that is to be picked up in city segment i belonging to ëb = tba + p b r
1 tc1b = 1
d
sb N /A T sbo
item size class h; pi1D1hS , the probability of a small item that q
is to be delivered in city segment i belonging to item size AT =
X
rc1d = 4xc −xd 52 +4yc −yd 52 1 Ai 1
class h; nSd1 i1 s , the number of stops per tour that a vehicle of i
type s can perform when serving city segment i from depot S D1S
b
P
location d for small-item pickup and delivery; and mSd1 i1 s , i Ai î i
tbb1S1b1D = bn1S1b1D tbb1S 1 bn1S1b1D = 1
the average number of tours that a vehicle of type s starts Nd 4ãDS1b /N d 5
within the maximum allowed service time when serving city Nd
ãDS1b = Ai îS D1S Ei1D1S 1 b1S1P
X
segment i from depot location d for small-item pickup and i qc1b = r1S1b1P
1
i c1b
delivery. These are given by
S1b
Tmax
Ai iS r1 S
r1S1b1P
c1b = bn1S1b1P S1b1P
c1b 1 S1b1P = 1
S
qd1 i1 s = r1 S
1 d1 i1 s = i1n1sS Sd1 i1 s 1 c1b
tb1S1b1P +tbs +2tc1b
r
+2tbb1S1b1P
d1 i1 s
P S P 1S
i Ai î i
S
Tmax
Sd1i1s = 1 ti11sS = i1n1sS ëi1 s 1 tb1S1b1P = bn1S1b1P ëb 1 tbb1S1b1P = bn1S1b1P t b1S 1
ti11sS + tss + 2td1
r b1 S Nd
i1 s + ti1 s
b
rd1 i os bn1S1b1P = ãP S1b = Ai îS Pi 1S Ei1P 1S 0
X
1
ëi1 s = tsa + 4D1
i
S
+ Pi 1 S 5tsu + qs 1 r
td1 i1 s = 1 4ãP S1b /N d 5
ss îS sso i
The cost of transporting large items between the CDC and

s
ti1b1sS = 4D1
i
S
+ Pi 1 S 5i1n1sS tsb1 S 1 i1n1sS = 1 PODs is defined as
max6ãDiS 1 ãPiS 7
a1 L
K a1 L =
XXX L
ãPiS = Ei1 P 1 S Pi 1 S 1 ãDiS = Ei1 D1 S D1 S
1 Ei1P 1 S = h pi1P 1hS 1 Sc1 i1 l kc1 i1 l 1 (A14)
X
i
h c i l
(
pP /pP 1 S ∀h h ≤
where the cost contribution of serving city segment i from
Ei1 D1 S = h pi1D1hS 1 P1S
pi1 h = i1 h i
X
1
h 0 ∀h h > a given CDC location c using a given vehicle type l for
( large-item pickup and delivery is defined as
pi1D h /piD1 S
∀h h ≤
pi1D1hS = 1 a1 L L
L s L v o
0 ∀h h > kc1 i1 l = qc1 i1 l mc1 i1 l tl wl + 2mc1 i1 l rd1 i 4wl + cl 5/sl
+ mLc1 i1 l nLd1 i1 l ëi1 l 4wl + clv 5 + flv 0 (A15)
(
S r1 S n1 S r1 Si1 s Sd1 i1 s < 1
nd1 i1 s = min6d1 i1 s 1 i1 s 7 = d1 1
i1n1sS Sd1 i1 s ≥ 1 This formulation is again based on definitions that resemble
mSd1 i1 s = max6Sd1 i1 s 1 170 those previously introduced to compute the cost of shipping
items between depot locations and city segments. In this case
For small-item transportation between the IDs and the
CDC, pickup and delivery item flows cannot be considered L Ai îL r1 L n1 L L
qc1 i1 l = r1 L
1 c1 i1 l = i1 s c1 i1 l 1
jointly because items to be delivered and items that have c1 i1 l
been picked up are transferred between these two layers of
L
consolidation at different times of the day. Second-echelon Tmax
Lc1 i1 l = 1 ti11lL = i1n1lL ëi1 l 1
transportation cost for small-item pickup and delivery can ti11lL + tls + 2tc1
r b1 L
i1 l + ti1 l
thus be formulated as
rc1 i ol
X X C1 H b1 S ëi1 l = tla + 4D1 L
+ Pi 1 L 5tlu + ql 1 r
tc1 i1 l = 1
K b1 S = ac1 b kc1 b 1 (A12) i
slo
c b
sl îL
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3] On: 18 October 2015, At: 09:54

Enabling Urban Logistics Services at La Poste through

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Enabling Urban Logistics Services at La Poste through

1. Introduction outbound shipments are split into individual consign-

Di Average number of delivery items per POD in city segment i

r  TS ARCE ã% TS ARCE ã% TS ARCE ã%

2 20 92087 90040 −2065 80044 80017 −0033 78061 76076 −2035

approximation quality is increasing in the speed and

transportation only from an active CDC location using only a single

Table 6 Additional Notation Two-Stage Optimization S D

locations with identical geographic coordinates. A XX S

fixed number of active IDs, N̄ d , while ignoring facil-

Table 7 Scenarios for Heuristic Performance Analysis

Computation time (sec.)

100/25/3/1 101050 (i) Uniform 2302 103 0088

400/100/3/1 1601200 (i) Uniform 1148101 2605 0036

Table 8 Vehicle Types and Characteristics

Pedestrian Bike Van Truck

Transport between CDC and PODs x x x

"IKEOPTIMALITYFRONTIER TMAXH 6ANOPTIMALITYFRONTIER TMAXH

"IKEOPTIMALITYFRONTIER TMAXH 6ANOPTIMALITYFRONTIER TMAXH

%;N D= %;N D= %;N D=

%;N D= %;N D= %;N D=

Figure 1 Zones of Cost-Optimality for Different Vehicle Types

Bike optimality frontier, Tmax = 2 h Van optimality frontier, Tmax = 2 h

Bike optimality frontier, Tmax = 4 h Van optimality frontier, Tmax = 4 h

E[N D ] = 1 E[N D ] = 3 E[N D ] = 5

E[N D ] = 1 E[N D ] = 3 E[N D ] = 5

∗ = 0.0 (2/T) for all Tmax

Postal case Logistics case

0.5 5 15 25 50 75 100 125 0.5 5 15 25 50 75 100 125

Figure 3 Optimal Network Design Under Various Parameter Settings

= 0.5 [1/km2] = 50 [1/km2]

E[ND] = 1 E[ND] = 3 E[ND] = 5

Cost increase [%]

Cost increase [%]

E[ND] = 1 E[ND] = 3 E[ND] = 5

Cost increase [%]

Cost increase [%]

E[N D] = 1 E[N D] = 3 E[N D] = 5

(a) Postal case

E[N D] = 1 E[N D] = 3 E[N D] = 5

(b) Logistics case

Figure 5 Optimal Number of IDs (Standardized)

E[N D] = 1 E[N D] = 3 E[N D] = 5

E[N D] = 1 E[N D] = 3 E[N D] = 5

(a) Postal case

E[N D] = 1 E[N D] = 3 E[N D] = 5

E[N D] = 1 E[N D] = 3 E[N D] = 5

Figure 6 Standardized Optimal Vehicle Counts

Total cost of operation Pedestrians

50 100 150 200 50 100 150 200

Figure 8 Optimal Fleet Composition Under Various Parameter Settings

Appendix A. Transportation Cost Model Pr4NiD1S = n  NiP 1S > 0∪NiD1S > 05

small (superscript S) or large (superscript L) are defined as y

when jointly considering small-item pickup and delivery

The cost of transporting large items between the CDC and

l Benjelloun A, Crainic TG (2008) Trends, challenges, and perspectives

Di Average number of delivery items per POD in city segment i

r TS ARCE ã% TS ARCE ã% TS ARCE ã%

"IKEOPTIMALITYFRONTIERTMAXH 6ANOPTIMALITYFRONTIERTMAXH

"IKEOPTIMALITYFRONTIERTMAXH 6ANOPTIMALITYFRONTIERTMAXH

%;N D= %;N D= %;N D=

%;N D= %;N D= %;N D=

Appendix A. Transportation Cost Model Pr4NiD1S = n NiP 1S > 0∪NiD1S > 05

l Benjelloun A, Crainic TG (2008) Trends, challenges, and perspectives