Hub and Distribution Center Location for a Third-Party Logistics service Provider: A Case Study at Tehran

Abstract

The rapid growth of the transportation industry and the advance of the e-commerce have opened opportunities for boom delivery services companies. Although, intense competition between shipping companies has obliged many to amend their shipment networks. In this setting, we aim to provide high-quality shipping services for a third-party logistics company in Iran. Currently, in the selected company, one hub is in the west part of Tehran that gives services to all customers. There are some difficulties in shipping services to the eastern part of Tehran city. Therefore, in this paper, we find the location of another hub center to streamline the shipping process. Moreover, to promote our service levels, some Distribution Centers (DCs) are going to be set up. Due to the lack of shipment data like pick up and delivery data, we tried to find the locations of the hub and the DCs based on Tehran population's data. We clustered 122 regions of Tehran based on population, economic index, accessibility to the internet, and the number of business units. Since some remote regions (which are not in the same vicinity) belong to the same cluster, we defined a relative distance criterion to avoid making remote regions in the same cluster. In each cluster, a fixed or movable DC can be set up to service the regions of its cluster. Moreover, to find the best candidate locations for the hub, each zone of Tehran was assessed based on some criteria like land cost, accessibility to the highways, and distance to its nearest bus terminal. Based on these criteria, some zones have been dominated by others, and the remains were considered as candidate locations in a hub location model. By considering the DCs as spokes in a hub and spoke model, the optimal location for the eastern hub establishment was determined.