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Analysing the cost efficiency of parcel distribution networks with changes in demand

Demand for parcel delivery services has rapidly increased recently mainly due to the tremendous growth of e-commerce worldwide. Responding to changes in parcel volume with small-sized frequent shipments poses a great challenge to parcel delivery companies, as they need to rationalize the cost of operating and maintaining their physical distribution networks, while achieving acceptable level of on-time delivery rate throughout their large market areas. The objective of this paper is to analyse the impact of increasing demand on the parcel distribution network structures in terms of minimizing transportation and sortation costs. Based on the case of South Korean parcel delivery industry, this study simulated various types of networks including point-to-point, hub-and-spoke, and multiple hub structure with parcel demand changes. This study can provide well-prepared adaptive network design strategies to parcel delivery service providers for various possible demand changes over the long term.