Network design in supply chain management

Abstract

The distribution function in a supply chain is an important internal service function for any firm, and has been increasingly recognized as playing a strategic role in achieving competitive advantage. This paper proposes improving the distribution function of the supply chain by employing hub‐and‐spoke network designs. Such designs have proven to be effective with third party logistics carriers such as Federal Express, UPS, Norfolk Southern, and Yellow Freight. Several models and heuristic solution techniques have been introduced in the literature in the past ten years. However, the performance of such heuristics, under different transportation environments, has not been examined. This paper acts as a first step in this direction. The performance of two heuristics to solve a hub‐and‐spoke network is compared against the performance of an optimal technique, for various configurations of data. With the results of this study, business managers can, by analyzing the structure of their data, assess the “risk” associated with applying one of the two heuristics. Heuristic developers can also exploit the results of this study to give them insight into areas where heuristics can be developed or strengthened in order to give rise to more robust heuristics.

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