Supply Chain Network Design and Transshipment Hub Location for Third Party Logistics Providers

Transshipment hubs are the places where cargo can be re-consolidated and transportation modes can be changed. Transshipment hubs are widely used in logistics industry. In this article, we consider a supply chain network design problem for a third party logistics provider in which we obtain the locations of transshipment hubs among promising hub locations for the objective of minimizing the total system cost that includes the transportation cost, the fixed cost and the processing cost. In the problem, the unit cost of transporting cargo between a pair of origin-destination is non-linear and is a decreasing step function, and each unit cargo through the transshipment hub is charged a fixed processing cost. The problem is considered a mixed integer programming problem. However, due to the complexity of the problem, a heuristic solution approach is proposed. The proposed solution is then implemented to a third party logistics provider and their experience shows that significant cost savings are obtained, compared with the current practice.