Design of a Hub-based Intermodal Logistics System for Multi-regional Commodity Flow

Intermodal logistics networks offer a viable solution to geographically dispersed supply and demand points (Arnold et al. 2004, Gooley 1997). Intrmodal Logistics (IL) incorporates different transportation modes in order to deliver a more competitive service than traditional logistics systems. Nevertheless, the design and the management of such a logistics network are restricted by the existing transportation infrastructure, location of modal transfer points and logistics cost structure (Warsing et al. 2001). A hub-based logistics system, essentially, provides cost savings by creating economies of scale which is driven by consolidation of shipments. Since intermodal networks are combinations of their respective modal networks, it is natural that the hub network has emerged as the most suitable network structure for intermodal logistics (Bookbinder and Fox, 1998). Briefly, a hub network has a small number of hubs where smaller sized shipments are consolidated and shipped using intermodal containers (Ishfaq and Sox, 2010). There are a number of multi-regional companies which endeavor to build their own IL systems. For example large telecommunication companies, such as Alcatel-Lucent, provide different products and services in many different regions. Especially, service part management, which requires an efficient transportation logistics network, is one of the most serious problems for such companies. In service part management, the company, such as Alcatel-Lucent, has agreements with customers which guarantee that the company either delivers the service part in a certain amount of time or pay a significant amount of penalty cost. Evidently, an efficient transportation and logistics system is a crucial requirement for such companies in order to decrease cost and increase customer satisfaction. Unfortunately, designing such an IL system involves a number of short term and long term decisions which complicates the problem such as hub location decisions. Actually, design and management of hub based logistics networks are the primary issues for IL system. More specifically, the number of 3 hubs and correspondingly their locations, and the assignments of shipments that are served by each hub need to be identified (Ishfaq and Sox 2010). Furthermore, consolidation of flows and the transportation mode between hubs, demand points and supply points have to be determined. In modern supply chains, the performance of the logistics networks is evaluated based not only on the logistics costs but also on service times (Ishfaq and Sox 2010). Therefore, there are time limitations for delivery of products so that penalty costs are incurred in the case of late product delivery, as it is the case in Alcatel-Lucent example. Such a multi-product and multi-mode logistics network design problem requires sophisticated modeling techniques and intelligent solution algorithms that high computational complexity is inherited. The project will develop a mixed integer programming (MIP) model for building such IL systems. The model will determine the locations of hubs, assign shipments for each hub, identify the transportation mode for each assignment of shipments, and finally determine the consolidation of shipments. In order to solve that MIP model, the project will also develop a heuristic solution algorithm.