Integrating collection-and-delivery points in the strategic design of last-mile e-commerce distribution networks

Abstract

The rapid growth in e-commerce volumes, coupled with customer expectations of faster, flexible and cheaper parcel deliveries is increasing the pressure on retailers to design the most efficient delivery network. Collection-and-delivery points (CDPs) allow for the aggregation of demand and enable reductions in travel time and costs. CDPs also help minimize additional tours arising due to failed deliveries or failed pickups for returns. We formulate an optimization model that integrates CDPs in the design of the overall distribution network, including the location of upstream transshipment facilities. The model accounts for changes in demand density due to the placement of CDPs. It considers demand aggregation at the CDP for both forward and return flows, and the impact of failed deliveries and failed return pickups on the routing cost. The model considers multiple different route options and solves them using extended routing cost approximation formulae thus allowing the implementation of the model on large-scale problems. We then apply the model to solve a real-world case study on the last-mile distribution network of a major Brazilian e-commerce retailer. The results demonstrate that failed deliveries and failed return pickups increase both the last-mile cost and the overall cost of distribution, and CDPs effectively reduce these costs by aggregating the demand and minimizing travel time.