Cost Modeling and Design Techniques for Integrated Package Distribution Systems

Complex package distribution systems are designed using idealizations of network geometries, operating costs, demand and customer distributions, and routing patterns. The goal is to find simple, yet realistic, guidelines to design and operate a network integrated both by transportation mode and service level; i.e., overnight (express) and longer (deferred) deadlines. The decision variables and parameters that define the problem are presented along with the models to approximate total operating cost. The design problem is then reduced to a series of optimization subproblems that can be solved easily. The proposed approach provides valuable insight for the design and operation of integrated package distribution systems. Qualitative conclusions suggest that benefits of integration are greater when deferred demand exceeds express demand. This insight helps to explain the different business strategies of package delivery firms today.