A Capacitated Collection-and-Delivery-Point Location Problem with Random Utility Maximizing Customers

TL;DR

This paper addresses the complex problem of strategically locating collection and delivery points considering customer preferences and uncertainty, proposing novel formulations and solution methods that are computationally effective.

Contribution

It introduces a mixed integer non-linear model for the problem, along with two linear reformulations using sample average approximation and scenario aggregation, solved via Benders decomposition.

Findings

The problem can be solved efficiently with appropriate methods.

Uncertainty level influences the choice of solution approach.

Accurate demand modeling significantly impacts solution quality and costs.

Abstract

We consider a strategic decision-making problem where a logistics provider (LP) seeks to locate collection and delivery points (CDPs) with the objective to reduce total logistics costs. The customers maximize utility that depends on their perception of home delivery service as well as the characteristics of the CDPs, including their location. At the strategic planning level, the LP does not have complete information about customers' preferences and their exact location. We introduce a mixed integer non-linear formulation of the problem and propose two linear reformulations. The latter involve sample average approximations and closest assignment constraints, and in one of the formulations we use scenario aggregation to reduce its size. We solve the formulations with a general-purpose solver using a standard Benders decomposition method. Based on extensive computational results and a realistic case study, we find that the problem can be solved efficiently. However, the level of uncertainty in the instances determines which approach is the most efficient. We use an entropy measure to capture the level of uncertainty that can be computed prior to solving. Furthermore, the results highlight the value of accurate demand modeling, as customer preferences have an important impact on the solutions and associated costs.