Two-stage optimization for planning logistics service networks

• Applicants: Professor Dr. Christoph Buchheim; Professor Dr.-Ing. Uwe Clausen
• Subject Area: Traffic and Transport Systems, Intelligent and Automated Traffic
• Term: since 2022
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 504583220

The structure of a logistics service network represents a significant influencing and success factor for the quality and profitability of logistics services. A typical network structure for these services are hub-and-spoke networks. Here, bundling effects can be achieved through the selection of hub locations, which can increase the overall efficiency of the network. The basic mathematical models for optimizing hub-and-spoke networks have been extended step by step in previous projects to integrate vehicle-dependent costs as well as uncertainties in the shipment volumes. However, the consumers' behavior has not yet been taken into account in these models. This aspect can be expressed by the customer choice between standard and express shipping, depending on the respective price. Express shipping is associated with a service promise for the delivery time of the shipments, which can be realized through direct transports between the depot locations. It should be noted, however, that express shipments reduce the volume of shipments between hub locations and thus have a negative impact on the bundling effects. Therefore, the central objective of this research project is to develop and solve a bilevel optimization model for logistics service network planning that adequately and realistically represents customer behavior. The logical decision sequence in this model is as follows: First, the prices for express and standard shipping are determined. From this pricing, the expected shipment volumes for each relation and shipping method are derived, based on the resulting customer decision. For these volumes, an optimal routing in the transport network is calculated. A key aspect of bilevel optimization is that the price and routing decisions are optimized simultaneously, anticipating the customer decisions resulting from the pricing. The goal here is to maximize the overall profit. The modeling of this optimization problem will be extended step by step to consider, for example, vehicle turnarounds and uncertainties (especially demand fluctuations), as well as a more realistic modeling of transportation costs. Also, the applicability of the developed optimization methods to real-world needs will be evaluated periodically and the proposed methods will be implemented prototypically. The process knowledge in the field of courier, express and parcel industry of the Institute of Transport Logistics and the expertise in mathematical modeling and optimization methods of the Chair of Discrete Optimization, as well as their longstanding cooperation, will allow a successful development of the proposed project. The aim here, in addition to the development of practical methods for decision support in the planning of transport networks, is to provide general mathematical and methodological advances in the highly topical research area of bilevel optimization.

• DFG Programme: Research Grants