Incremental Optimization of Hub and Spoke Network for the Spokes' Numbers and Flow

Abstract

Hub and spoke network problem is solved as part of a strategic decision making process which may have a profound effect on the future of enterprises. In view of the existing network structure, as time goes on, the number of spokes and the flow change because of different sources of uncertainty. Hence, the incremental optimization of hub and spoke network problem is considered in this paper, and the policy makers should adopt a series of strategies to cope with the change, such as setting up new hubs, adjusting the capacity level of original hubs, or closing some original hubs. The objective is to minimize the total cost, which includes the setup costs for the new hubs, the closure costs, and the adjustment costs for the original hubs as well as the flow routing costs. Two mixed-integer linear programming formulations are proposed and analyzed for this problem. China Deppon Logistics as an example is performed to present computational analysis, and we analyze the changes in the solutions driven by the number of spokes and the flow. The tests also allow an analysis to consider the effect of variation in parameters on network.