Parcel distribution network design problem

This paper presents and discusses the parcel distribution network design problem for ground shipments. An optimization model is developed to formulate this problem. The model is distinguished by its ability to: (i) incorporate actual economies of scale rather than relying on the theoretical discount factor commonly used in the literature, (ii) deal with more than one level of facilities and locate them simultaneously, (iii) find the optimal hub‐to‐hub connections rather than assuming a complete hub‐to‐hub network. More capabilities of the formulation include size‐reduction features and piecewise travel cost functions. The model is illustrated with an application to a real‐world problem; the generated design decreases the annual operating cost by around 9%.