Saturday, 26 January 2008

Express OR

I have been involved in a project for an express company for a few months now and I am quite enthusiastic about it. The express company is faced with a lot of challenges that can be viewed from an operations research professional’s perspective as being in a candy store. The supply chain that a typical express company has is rather simple. Parcels are picked up and brought to a depot using small vans. Sometimes customers bring there freight directly to the depot. From the depot, in most of the cases, the parcel is transported to a hub. There all the parcels are sorted and put on trucks. Depending on the available time to transport the parcel, it is transported via one or more hubs using either road- or air-transport. Eventually it is transported from the last hub to the depot of its destination. There it is put on a small van to transport it to its final destination.

Depending on the kind of freight, the parcel has to be delivered at a certain time. For example if you sent a document and want it to be at its destination before 9’oclock, this would be a premium service. When the document or parcel is not requested to be at its final destination that soon, it is considered to be normal freight, giving the express company more time to deliver it at is final destination. Because the transportation of the parcel or document, also called consignment, takes time, it has to be available on time at the origin depot for transport. This is also the case for the destination depot; otherwise the express company will not be able to deliver it on time at its destination.

An express company has to take various decisions in building its network. It needs to decide how many depots and hubs it wants to use (infrastructure) and how to connect the depots to the hubs (line haul schedule, including modality). Also it needs to decide on how to assign different regions to a depot to pick up or deliver (PUD) the freight and construct efficient PUD routes. A large number of depots will lower the cost of the pick up and delivery of the freight, but will increase the infrastructure cost and line haul cost. How many locations should it therefore use? Clearly there is a trade-off as can be seen in the below graph.

At the express company I have performed several projects on this subject, in several countries. Currently we are having a look at the hub infrastructure in a South American country. To solve it a network flow kind of approach could be applied, similar to the one I used for the UNJLC assignment. There is a difference however and that is the time constraint. The freight has to be on time, something that is not easy to incorporate in such a model. To solve the challenge of the express company we therefore designed a model that is capable of constructing a high level line haul schedule, including timing of the freight. The model is fed a set of possible hub locations from which a predefined number of hubs is by selected by the model. These will be the optimal infrastructure. We feed the model with a set of predefined locations because you wouldn’t want a hub to be located “in the middle of nowhere”, far away from important highways or junctions. Also the management of the express company has have special interest in certain locations, or want to fix locations in the current infrastructure. We run the model several times, varying the number of hubs to be selected. This way the best set of hub locations can be identified the set with the lowest total cost. Next step is than to construct the network schedule in detail, something that I will take up in a future blog entry. Using our model the express company is able to identify the locations which they should keep and were to invest in new ones, saving a lot of money.

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