Abstract
An important service provided by third-party logistics (3PL) ?rms
is to manage the inbound logistics of raw materials and components
from multiple suppliers to several manufacturing plants. A key challenge
for these 3PL ?rms is to determine how to coordinate and consolidate
the transportation ?ow, so as to get the best overall logistics performance.
One tactic is to establish consolidation hubs that collect shipments
from several suppliers, consolidate these shipments, and direct the
consolidated shipments to the appropriate manufacturing plant. We
consider the network design problem to implement this tactic, namely
deciding the number, location and operation of consolidation hubs
so as to minimize the total logistics costs for the network. To solve
this network design problem, we de?ne candidate shipping options
for each potential hub, for which we can pre-compute the shipping
quantities required from each supplier, and the incurred shipping
costs and inventory holding costs. We formulate the problem as an
integer linear optimization model and illustrate how to solve large
instances using Lagrangian relaxation and a subgradient optimization
algorithm. Our results indicate that the bounds obtained are fairly
tight and are superior to the bounds obtained from the solution of
the LP relaxation.
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