Case Studies on Transport Policy 6 (2018) 125–132

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Case Studies on Transport Policy

journal homepage: www.elsevier.com/locate/cstp

Modelling alternative distribution set-ups for fragmented last mile transport: T

Towards more efficient and sustainable urban freight transport
⁎
Bram Kina, , Joeri Spoorb, Sara Verlindea, Cathy Macharisa, Tom Van Woenselb
a
MOBI – Mobility, Logistics and Automotive Technology Research Centre, Vrije Universiteit Brussel, Pleinlaan 2, 1050, Brussels, Belgium
b
School of Industrial Engineering, Operations, Planning, Accounting and Control (OPAC), Eindhoven University of Technology, Eindhoven 5600 MB, The Netherlands

A R T I C L E I N F O A B S T R A C T

Keywords: A mathematical model is developed to calculate the costs of alternative distribution set-ups for last mile
Urban freight transport transportation in a supply chain with small and fragmented volumes. The model is based on input from logistics
Sustainability cost models for urban areas combined with cost variables related to logistics processes, receiver attributes and
Megacities local city characteristics. The cost variables for each aspect (logistics, receiver, city) influence the cost-effec-
Modelling
tiveness and applicability of an alternative distribution set-up. The model is applied on the delivery of fast
moving consumer goods (FMCG) towards small independent retailers in a megacity. The current supply of these
stores is characterized by high costs, inefficiency and unsustainability. Four different set-ups are modelled. The
model shows the effects of different city and store request parameters. When drop sizes are low and distances are
short, direct shipments with smaller vehicles outperform the current direct set-up. When drop sizes are low and
distances are long, collaborating in an urban consolidation centre (UCC) shows a saving. The model can be
further validated with data from other cities and other distribution set-ups.

1. Introduction infrastructure demand and supply, congestion, a lack of (un)loading

It becomes increasingly challenging for companies to keep urban
freight transport (UFT) reliable and affordable (Dablanc, 2007;
Verlinde, 2015). Whereas the provision of goods is vital to the quality
and livability of cities, it also affects sustainability of those cities (i.e.,
congestion, pollution and noise) (Lindholm, 2013; Quak, 2008;
Verlinde, 2015). At the same time, factors like increasing congestion
and measures such as time windows complicate the movement of goods
(Quak, 2008). For companies this means that last mile transport, mostly
taking place in cities, is the most inefficient part of the supply chain.
This exhibits itself in low load factors and empty running (MDS
Transmodal, 2012). The share of costs related to the last mile, as part of
the total transport costs, is 28% (Arvidsson, 2013) and can contribute
up to 75% of the total logistics costs in case of e-commerce (Gevaers,
2013).
Several trends indicate that logistically UFT will become even more
complex and costly. The demand for UFT grows because of urbaniza-
tion. Most urbanization takes place in emerging economies leading,
amongst others, to the rapid emergence of highly dense megacities
(Bretzke, 2013; Kin et al., 2017). Transport challenges might be similar
to other cities but are more magnified and considerably impact
the performance of transport operators; a large deficit between
spaces due to the high density, restrictive measures, insufficient plan-
ning and logistics sprawl leading to longer distances to the final re-
ceiver (Dablanc and Rodrigue, 2014; Kin et al., 2017; Vieira et al.,
2015). At the same time a fragmentation of freight flows, particularly
consumer goods, occurs. This is caused by increased delivery frequency,
lower inventory levels, more delivery addresses and just-in-time (JIT)
deliveries (Alho and de Abreu e Silva, 2014; Dablanc and Rodrigue,
2014; Macharis and Kin, 2017). Developed logistics cost models for
urban areas do not take these more recent challenges sufficiently into
account.
In order to cope with these challenges, alternative ways of trans-
porting goods in the last mile emerge (Macharis and Kin, 2017;
Savelsbergh and Van Woensel, 2016). These include (horizontal) col-
laboration in an urban consolidation centre (UCC), multi-echelon net-
works, initiatives such as crowdsourcing in the light of the sharing
economy, the use of lockers and the deployment of alternative vehicles
(e.g., electric vehicles, cargobikes). There are ample research oppor-
tunities for these newer last mile distribution set-ups (Savelsbergh and
Van Woensel, 2016). Additionally, the applicability and success of al-
ternative distribution set-ups largely depends on the local context (e.g.,
restrictions, density, congestion level) and transferability of set-ups is
complicated (Timms, 2014).

⁎
Corresponding author.
E-mail address: bram.kin@vub.be (B. Kin).

https://doi.org/10.1016/j.cstp.2017.11.009
Received 17 February 2017; Received in revised form 26 September 2017; Accepted 30 November 2017
Available online 07 December 2017
2213-624X/ © 2017 World Conference on Transport Research Society. Published by Elsevier Ltd. All rights reserved.
B. Kin et al.
This study aims to fill these gaps by modelling the cost-effectiveness
of alternative distribution set-ups to improve the efficiency of frag-
mented freight flows. The model is based on logistics processes and
takes into account receiver attributes and local context, which other
studies do not include. Each aspect has different cost variables that
influence the applicability and transferability of a distribution set-up. In
order to validate the model it is applied on the highly fragmented
supply of fast moving consumer goods (FMCG) towards small in-
dependent retailers. In the next section a literature review on logistics
cost models for urban areas and cost variables is conducted. Hereafter
model-based research is applied to translate the reality into a mathe-
matical model (Section 3). Section 4 describes the set-up of the case
study in which data from a FMCG company are used. Section 5 de-
scribes the results of the analysis which also shows the influence of
different receiver request and city parameters. After a discussion on the
results and the cost-model, the paper is concluded.
2. Literature review
2.1. Logistics cost models
Different logistics cost models were developed for urban areas.
Gevaers (2013) designed a formula in which the last mile cost per unit
shipped is calculated. It starts with a general time and distance cost
function where costs for travelled distance, costs for time passed and
general costs are included. The total time of transport is multiplied by a
certain time coefficient, whereas the total distance travelled is multi-
plied by a certain distance coefficient. Daganzo (2005) created a
method to estimate the length of the Vehicle Routing Problem (VRP).
To obtain a more elaborate function Gevaers (2013) added a stop
coefficient and a unit coefficient. The focus of this model is on business-
to-consumer (B2C). However, a business-to-business (B2B) delivery can
be interpreted as a B2C delivery with a higher first time hit rate and on
average a higher drop size. Tavasszy et al. (2010) define the costs for a
product as a function of inventory, handling and transportation costs.
They argue that the inventory costs are a function of replenishment
frequency, order size, standard deviation of demand, standard devia-
tion of the supply, transport time, interest rate and value of the goods
transported. For the handling costs, they define the packaging density
in number of colli per m3 as an independent variable. The transport
costs are presented as a function of the distance, shipment size and
frequency, value density, mode, speed and the reliability of the mode
used. In the field of UFT different scholars argue that the use of satellite
facilities, as transshipment locations, can lead to economic and en-
vironmental benefits (Crainic et al., 2004; Cuda et al., 2015;
Hemmelmayr et al., 2012; Merchán Dueñas, 2015; Savelsbergh and Van
Woensel, 2016). The use of satellite facilities leads to multi-echelon
networks and related costs. Whereas Cuda et al. (2015) review the lit-
erature regarding two-echelon distribution systems, multi-echelon
networks with more than two tiers might be applicable to megacities
(Savelsbergh and Van Woensel, 2016) (Fig. 1). Location routing-models
as elaborated in relation to VRP (Hemmelmayr et al., 2012) are left out
of scope in this study as it solely focuses on the logistics costs of al-
ternative distribution set-ups for the very last mile.
2.2. Variables
Macário et al. (2008) present the Logistics Profile (LP) concept that
is based on the hypothesis that it is possible to identify reasonably
homogeneous groups of logistics needs for some well-defined areas
within the city. It consists of three aspects: the characteristics of the
city, the needs of the logistics agents and the characteristics of the
product. Each aspect has subsequent variables but these remain rela-
tively limited regarding set-ups to improve fragmented deliveries. Ex-
tending upon what Macário et al. (2008) discuss, we propose a cate-
gorization to capture cost variables. The variables define the cost-
126
Case Studies on Transport Policy 6 (2018) 125–132
Fig. 1. Depiction of a Two-echelon Capacitated Vehicle Routing Problem (2E-CVRP)
(Cuda et al., 2015).
effectiveness of distribution set-up for a homogeneous group of logistics
needs: logistics processes, the city characteristics and receiver attributes.
The three aspects are mutually influencing. In this section, a literature
review on the cost variables is conducted.
The properties of the (final) receiver determine how the last mile
transport is organized. First of all, the number of receivers in a given
area determines the stop density and herewith distances (Alho and de
Abreu e Silva, 2014; Macário et al., 2008). Depending on the type of
receiver, stops can be supplied n times in a given time period, which is
the replenishment frequency. The drop size per delivery is determined
by the total volume demand during a period divided by the replenish-
ment frequency during that period (da Silva, 2008; Garza Ramirez,
2011; Gevaers, 2013; Macário et al., 2008; van Binsbergen and Visser,
2001). Product characteristics determined by the receiver are the size,
weight and value (Garza Ramirez, 2011; Gevaers, 2013 van Binsbergen
and Visser, 2001).
Cost variables that influence logistics, for the last mile in this case,
are the average stop time per stop, the (average) distance from the
depot to the first stop, the distance between the stops and the average
speed (Boyer et al., 2009; Gevaers, 2013; van Binsbergen and Visser,
2001). Delivery rounds are restricted on either the capacity of the ve-
hicle or the shift length of the driver (Boyer et al., 2009 van Binsbergen
and Visser, 2001). Costs of each vehicle consist of purchase, deprecia-
tion, financing costs, insurance, taxes, maintenance/repair, auxiliary
material and fuel (Otto et al., 2009). Satellite facilities do not hold in-
ventory and transshipment mostly takes place on smaller vehicles in
order to increase the fill rate for the final deliveries. Satellite facilities
can have different forms. In addition to single-operated transshipment
points, other possibilities are mobile satellite facilities and joint de-
livery systems with a UCC. In the latter small and fragmented volumes
are consolidated through collaboration between different operators
(Savelsbergh and Van Woensel, 2016; Verlinde et al., 2014). Depot
costs include, first of all, rent and fixed costs which are related to the
capacity of the depot. Second, costs related to operations including
picking (determined by annual number of picks, time needed per pick
and hourly wage for a picker) (Otto et al., 2009).
Finally, the local urban context largely influences the viability of a
certain distribution set-up. The size of the city or delivery area is im-
portant since it determines the stop density and distances. The popu-
lation density is also an important variable. For instance, Asian cities
have average densities between 10,000 and 20,000 p/km2, which is
twice as much as in Latin America, three times the densities in Europe
and ten times those in the US (Dahiya, 2012). Related to this, other
important cost variables are available infrastructure (street density) and
congestion factor (Alho and de Abreu e Silva, 2014; Dablanc and
Rodrigue, 2014; Gevaers, 2013; Macário et al., 2008). Restrictions can
B. Kin et al. Case Studies on Transport Policy 6 (2018) 125–132

Table 1
Cost variables (own depiction based on literature review).

Receiver Logistics City

Number of receivers (#) Average stop time (h) Size area (km2)
Stop density (#/km2) Average distance depot to stop (km) Population (#)
Drop size (# items) Average distance between stop (km) Population density (p/km2)
Replenishment frequency (#/period) Average speed (km/h) Street density (% of urban area)
Parcel size/volume (m3) Shift length driver (h) Congestion factor (% delay)
Parcel value ($) Delivery vehicle; capacity volume (m3) Time restrictions
Volumetric weight of parcel (kg/m3) Delivery vehicle; capacity weight (kg) Vehicle restrictions
Annual rent depot ($/m2) Wage ($/h)
Capacity depot (m2) Fixed costs ($/period) Fuel price ($/l)
Annual number of picks (#)
Time needed per pick (h)
Delivery vehicle; annual costs ($/#)
Fuel consumption (liter/100 km)

hinder deliveries and can be divided between those specifically for the
vehicle (e.g., emission standard, size, weight) and time (Macário et al.,
2008). Finally, the local wage level and fuel price influence the overall
costs (Otto et al., 2009). Table 1 lists the three categories with cost
variables.
3. Mathematical cost-model
With input from the previous section – the logistics cost models
(Daganzo, 2005; Gevaers, 2013; Tavasszy et al., 2010) and the cost
variables – a mathematical model is built to cost-model different dis-
tribution set-ups. Last mile transportation consists, first of all, of
transport costs which can be subdivided between time and distance. In
case of multi-echelon networks, transshipment facilities or depots are
added. At a depot there are costs for inventory and handling (space and
time costs). An overview of all cost drivers can be found in Appendix A
of Supplementary material. The main assumptions underlying the
mathematical cost-model are listed in Appendix B of Supplementary
material.
The transport time costs refer to the cost per km of driving a vehicle.
It consists of a summation of the total distance travelled per vehicle
type i per tier, Di, multiplied by the cost per vehicle type, with a
maximum of n vehicles. Note that i reflects the vehicle type per tier and
another vehicle can be selected for another tier. It is assumed that an
optimal route is pursued when calculating the total distance. Due to the
high complexity of the problem, where the number of stops N is large,
solving the VRP to determine the optimal total distance is not possible.
Daganzo (2005) created an estimation function for the expected total
distance of a route (D). The estimation function consists of two parts.
The average distance from the depot to the stops (r) and the distance in
the area between the stops. For the second part, a uniform distribution
N over service area A is assumed with k as a dimensionless constant that
depends on the metric (k ≈ 0.57 for the Euclidean metric, and k ≈ 0.82
for the L1 metric). In practice, this might not always hold as there are
streets with multiple stops and streets where there are no stops at all.
However, because the distance travelled is not overly sensitive to de-
viations from the ideal design, the distance formula should be accurate
(Daganzo, 2005). The number of tours, m, is determined by the capacity
of a vehicle type, Ci in N it can serve. In practice the vehicle fill rate can
be lower than 100% because of the shift length of the driver. Therefore,
m should be the max function of volume restriction and shift length
restriction. Q is the average monthly demand of stop N, τi is the total
time it takes per stop (stop time and driving time) per vehicle type i,
and Tli is the shift length per i. It is assumed that either one of these
restrictions is used optimally. The total time per stop is the sum of the
average driving time per stop, and the stop time per vehicle tstopi . The
first time hit rate is 100% and stop time does not depend on the volume.
Average driving time involves Di divided by N, subsequently divided by
average speed, vi. A congestion factor β is inserted to be able to check
the influence of varying speeds in the city; e.g. a β of 2.0 means that the
average speed that the vehicle could drive in a free flow situation will
now be halved. The effects of increasing or decreasing monthly re-
plenishment frequencies, f, is added. We assume that Q is equally di-
vided over replenishment periods. As stops can be visited multiple times
per period, tstopi , should be multiplied by f. The total formula should be
multiplied by f and the variable r is changed to rj reflecting the specific
distance between depot j − 1 and depot j. Cases and loose items (e.g., e-
commerce) can be transported. Ci is in cases and Q in items. To translate
items to cases, p is introduced. An inefficiency factor, δ, corrects for the
loose items taking up more space than full cases. The term Di is used
both as an output of the equation as well as input variable. This is due
to the fact that the total distance covered influences the driving time,
and therefore the shift length restriction. Using recursive estimatior Di ,
the value of Di will continuously be updated until the improvement is
ˆ
smaller than 0.01. As a starting point, only the volume restriction is
used to determine the number of tours m. Few iterations are needed
when assuming that the shift length of the driver is approximately
matched with the volume capacity restriction, which is true when f is
small. In the case of extra cross-dock depots, each depot serves its own
area, thereby dividing N by the number of depots. Furthermore, A will
be divided by the number of depots, in equal parts. In case of joint
delivery systems transport and depots are shared. For a shared set-up
with a UCC, costs are shared based on volume shipped, whereby V
represents the fraction costs. In this case N’ are the number of stops
reached by the sharing partners and Q’ the extra volume created per
stop. z1 is the Boolean telling if j is non-shared (0) or shared (1) and z2
when N’ are the same stops (0) or new ones (1). Shapley and Scarf
(1974) discuss economic models for sharing commodities that are in-
herently indivisible using a cooperative game theory approach. How-
ever, for this research it is assumed that both the transport costs and the
depot costs are shared based on volume shipped. The costs per i per
km,CiD , consist of fuel consumption, fuel cost, purchase price, depre-
ciation, average annual km, maintenance and insurance. The transport
distance costs for the final tier can be calculated by combining Eqs.
(3.1)–(3.3). In non-final tiers − to the depots − the stop time will be
higher than at the stops due to unloading of full vehicles. However, as
the number of stops is much smaller, the shift length constraint will
never be reached to its full potential. Therefore, only the volume ca-
pacity of the vehicle will determine the number of tours.
⎛⎡
⎜
m = max ⎢
N· (
Q/f
p
+ z1· N ′·
Q′ / f
p )
·(1 + δ ) ⎤
⎥·f ,
ˆ
⎡ Di + t · f ·(N + z · N ') ⎤⎞
⎢ vi / β stopi 2
⎥⎟
⎜⎢ ⎥ ⎢ ⎥⎟
Ci ⎢ Tl ⎥
⎜⎢
⎢
⎥
⎥ ⎢ ⎥ ⎟
⎝ ⎢ ⎥⎠ (3.1)
Di ≈ 2r j·m + k A·(N + N ′·z2 − 1) ·f (3.2)
n
CTransportDistance = ∑ Di ·CiD·V
i=1 (3.3)

127
B. Kin et al.
For the transport time costs, Ti is multiplied by the time per i, CiT . The
latter is an input parameter based on the number of employees per
vehicle (i.e., driver, loaders) and the hourly wage. In case of a shared
tier, the costs are shared with the UCC partners. The costs are shown in
Eq. (3.4). It is assumed that in the case of transhipment facilities, full-
truckload (FTL) vehicles are shipped and no time constraint is active.
The stop time should be left out of the time cost calculation for the non-
final tiers to the transhipment facilities. The costs for unloading these
vehicles are already being calculated in the (un)loading costs at the
depot.
n 2014; Magalhães, 2010). Therefore, in order to drive sales, manu-
Dˆ
CTransportTime = ∑ ⎛ ν /iβ
⎜ + tstopi.f .(N + z2·N ′) ⎞⎟·CiT ·V
i=1 ⎝ i ⎠ (3.4)
In case of transhipment facilities, the depot space costs refer to the
costs for renting the depot and some fixed overhead. As shown in the
Eq. (3.5), Nj is the total number of depots of type j and CjF the monthly
fixed costs per depot regardless of shipped volumes. Sj is the average
number of m2 needed for the depot based on the volume and CjS the cost
per m2. For the depots it is assumed that cases have the same in-
efficiency factor as the vehicles, δ. A factor αj is introduced which is
defined as the space required per case in depot type j. A maximum
function is introduced to force the depot to be at least S jmin m2 since
vehicles need to arrive and minimum space is necessary for managers.
Again, the costs are split in case of a UCC. Inventory costs are not in-
curred and administration costs are left out of scope as it is diffuclt to
assign costs to it.
m thousands of nanostores are supplied on a weekly or bimonthly basis. A
⎛ ⎛ Q Q′ ⎞
CDepotSpace = ∑ ⎜Nj·⎜CjF + max ⎛⎜Sjmin ⎡⎢ ⎛N · p
⎜ + z1·N ′ ·
p⎠
⎟.(1 + δ )
j=1 ⎝ ⎝ ⎝ ⎣⎝
Depot time costs involve labour for unloading vehicles, picking of
cases/items and loading. T Uj ,TjP and TjL are defined as the time it takes
per case to unload, pick and load respectively. CUj ,CjP andCjL are the la-
bour costs for unloading, case picking, and loading (Eq. (3.6)).
m
⎛ ⎞ Q Q′ ⎞
CDepotTime = ∑ ⎜T Uj ·CUj + TjP·CjP + TjL·CjL⎟·⎡⎢N · p + z1·N ′ ·
j=1 ⎝ ⎠⎣
When combining equations Eqs. (3.1)–(3.6), the total costs applic-
able to each set-up are yielded. The model is non-linear and the aim is
to see the effects when different parameters are changed. It is translated
into an Excel tool, from which the results can be derived.
4. Analysis
4.1. Set-up
To validate the mathematical model a case study is conducted. The
model is applied on the last mile transport towards small independent
retailers in a megacity. Freight flows towards small independent re-
tailers, in literature also known as nanostores, are highly fragmented
(Blanco and Fransoo, 2013). Nanostores are typically smaller than
15 m2 and are the dominant retail channel in most emerging economies;
i.e., 61% of the retail market in Latin America and more than 90% in
India (Kin et al., 2017). Compared to modern retail, the number of
customers and products are considerably lower. From a logistics per-
spective, modern retailers rely on distribution centres (DC), cross-docks
and third party logistics (3PL) leading to relatively efficient logistics
characterized by the consolidation of goods from different manu-
facturers. Contrary, nanostores have no logistics support and ways to
supply these stores are relatively inefficient. This is particularly caused
by low drop sizes and high replenishment frequencies leading to low
vehicle fill rates (Blanco and Fransoo, 2013; Morganti and Gonzalez-
Feliu, 2015). Five different supply strategies are distinguished for na-
nostores: on-board sales, presales with direct store delivery (DSD),
Case Studies on Transport Policy 6 (2018) 125–132
indirectly via distributors (on-board or with presales) and via whole-
salers (Blanco and Fransoo, 2013; Garza Ramirez, 2011; Otto et al.,
2009). Whereas in Europe and the United States the majority of the
store owners go the wholesaler or modern retailer, in emerging
economies manufacturers mostly work through distributors. Due to the
high number of stores in cities, exclusive distributors are often used,
meaning that only the products of that particular company are sold and
delivered (da Silva, 2008; Garza Ramirez, 2011). Since nanostores often
lack a storage room, a product is out of stock when it is not on the shelf.
This leads to continuous inventory replenishment (Boulaksil et al.,
facturers want to secure shelf space and try to supply as often as pos-
sible (Otto et al., 2009). One can therefore say that physical supply and
sales are inherently linked and lead to inefficiencies. From a business as
well as sustainability perspective it is therefore necessary to reassess the
currently used distribution set-ups for small deliveries in terms of cost-
effectiveness.
With data from a FMCG company, the cost-effectiveness of four
distribution set-ups to supply nanostores in a real megacity in an
emerging economy is calculated.1 Currently the FMCG company uses a
distributor to exclusively deliver its products to a high number of na-
nostores in this city. First, the FMCG company delivers FTL to the DC of
the distributor which is located on the edge of the city. Due to the size
of the area and number of stops (high stop density), the distributor
divided the area. Each part is served by one distributor branch which is
supplied from the DC on a daily basis. From each branch several
⎤ · αj ⎞ · C S ⎞ · V
⎥ Nj ⎟ j ⎟
sales employee of the distributor who represents the FMCG company,
⎦ ⎠ ⎠ visits several stores on a day to take orders (presales). Cases as well as
(3.5) loose items can be ordered. After collecting the orders, these are sent to
the branch where an aggregated pick-list is created. The combined
order of two sales employees are submitted to one vehicle; a van or
small truck. On the vehicle there is a driver and one or two loaders.
Products are delivered following the same tour as the sales employee.
After the delivery at the store they receive the payment.
The case study focuses on an area within the megacity that is sup-
p⎠
⎟.(1 + δ )
⎤·V
⎥ plied from one distributor branch. It thus concerns the very last mile. In
⎦
addition to the direct distribution set-up, three other set-ups leading to
(3.6) multi-echelon settings are modelled. In the second set-up, an additional
cross-dock (XD) depot is added. In the XD goods are transshipped into
smaller vehicles. No inventory is held at the cross-dock depots. The
purpose of this set-up is to create more efficient transport by increasing
vehicle fill rates. The third set-up concerns sharing a cross-dock depot
and vehicles for final deliveries with other distributors in a UCC. The
purpose is to increase the volume per vehicle by cooperating with other
companies thereby decreasing the costs per item. In the final set-up
goods are first shipped to a UCC and hereafter to a XD in order to de-
crease distances to the stores. Consequently this leads to a multi-
echelon setting with three tiers.
During the final tiers of a delivery round, the driver and loader(s)
pick cases and items at each depot and deliver them to the stores. These
operations are captured in an average stop time. Hereafter, they drive
to the next store, and the process repeats, until their vehicle is empty
and they drive back to the depot. The vehicles are restricted on either
the shift length of the drivers or the volume capacity of the vehicle. In
the set-ups with transhipment facilities, FTLs are shipped on the first
tier. At this depot the vehicles are completely unloaded and loaded into
smaller vehicles. Different vehicle modes are included in the modelling.
The set-ups are shown in the figure below (Fig. 2). Costs are calculated
as soon as the vehicle leaves the branch. In the figure, the arcs represent
1
Due to confidentiality reasons, the company from which the data originate is not
mentioned, neither are the specific costs nor the megacity that has been visited to obtain
data. Cost values are either manipulated or left out. However, this will not influence our
results because the intention is to compare the values between different alternative dis-
tribution set-ups.
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B. Kin et al.
a transport job, composed of distance and time (transport time costs
and transport distance costs). The squashed rectangles represent depots
subdivided in costs for inventory and handling (depot space costs and
depot time costs). In order to see the influence of different store request
parameters, costs are calculated per month.
4.2. Data and input parameters
Data and input parameters originate from different sources. First of
all, the costs of the four distribution set-ups are based on the monthly
sales data of the FMCG company in the megacity. The sales data reveal
that the monthly order frequency per store in the megacity varies: 22%
orders monthly, 22% fortnightly, 18% three times per month. 90% of
the nanostores included, order between one and five times. The order
quantity per order is a major cost driver. More volume are more costs,
but due to economies of scale the cost per item will decrease. 45% of
the orders contain between 0 and 25 items. This shows the small size of
the nanostore channel. About 85% of the orders contain 100 items or
less and the average order quantity is 58 items, with a standard de-
viation of 93 items. Average monthly order size equals 144 items. In
addition to available (sales) data, ideally, one would try to find supply
chain cost data from different sources, combine them, and use regres-
sion analysis to determine the most impactful predictors. One could
then fill in different cases (i.e., cities) and see the effects of different
parameters under different circumstances. However, as 3PL companies
are exceptionally non-transparent in their cost structure and price set-
ting, not all these data points are available. Supply chain costs are
therefore collected through a field visit in the megacity and validated
via interviews with supply chain experts from the company.
Different input parameters are used for the case study. First, the size
of the area served by one branch is 50 km2 and the number of nanos-
tores served is 5000. The average demand is 150 items with a monthly
replenishment frequency of 3. Large trucks (i1) with a capacity of 500
cases are used for the non-final tiers; branch to XD/UCC. For the final
tiers to the nanstores, small trucks (i2) with a capacity of 250 cases are
used. In the sensitivity analyses motorbikes (i3) and bicycles (i4) are
129
Case Studies on Transport Policy 6 (2018) 125–132
Fig. 2. Modelled set-ups.
used as well. A case contains 6 items on average. Because of the small
size of the area and the high density the distance between the branch
and the nanostores (set-up 1), and between branch-XD/UCC is 3 km,
whereas the distance to the nanostores is 0.5 km (set-up 2–4). This is
due to the fact that the locations of the depots can never be perfectly
located such that the sum of the distances per tier equals the direct
distance from the branch to the nanostores in the direct set-up. The
detour factor is set to 1.10 (Justen et al., 2013). Finally, the number of
stops visited by the UCC partners are exactly the same stores that the
FMCG company visits, and the number of items ordered per store are
equal. The company’s share in the UCC is 50%. The number of UCCs (U)
and XD 1 depots (cd1) is set to 2, while the number of XD 2 depots (cd2;
set-up 4) is set to 4. This means that the demand per branch is split in
two, and the demand per UCC for set-up UCC+XD is again split into
two. The decision on how many UCCs and cross-docks to use for the
model is pragmatic. Inserting more depots in the network increases
depot costs. It will, however, decrease the distances covered. All input
parameters are given in Appendix A of Supplementary material.
5. Results
In this section the results of the analysis as described in the previous
section are shown. This is followed by sensitivity analyses to see the
influence of different store request and city parameters. Fig. 3 shows the
total costs per set-up. One can see that the direct set-up has the lowest
cost, specifically due to the absence of depot costs (for both rent and
handling). Furthermore, the wage of the drivers are the biggest cost
driver for the transport part; three to four times the size of the transport
distance cost (vehicle and fuel). Moreover, when comparing the trans-
port costs of set-ups XD and UCC, which is non-shared versus shared
respectively, the wage of the driver is almost halved due to the con-
solidation. Also, the depot rent costs are less expensive because the
depot is shared in the UCC scenario. Depot handling increases about
25% from set-up XD to set-up UCC due to the extra case picking
(consolidation) in the UCC. The main conclusion is that the extra costs
for the depots, being both rent and handling, are greather than the
Fig. 3. Total costs per set-up.
B. Kin et al. Case Studies on Transport Policy 6 (2018) 125–132

approximate 50% reduction in transport costs between the current set-

up and a UCC or cross-dock set-up.
Sensitivity analyses on several variables and input parameters are
performed to see under which circumstances the alternative set-ups will
outperform the current one. First, the costs per item for a varying
number of stores are analyzed. When the number of stores in the same
delivery area varies from 500 to 6000, the direct set-up outperforms the
other set-ups.
When changing the area size and keeping the number of stores the
same (5000), thus changing the store density, costs per item remain
almost the same with a store density of 6 per km2 or more. The distance,
and thus time, between the stores will be too small from a store density
of 6 per km2 or more, compared to all the other costs to have an ob-
servable influence. In the current set-up, the branch is with 3 km lo-
Fig. 5. Costs per item for varying demand levels and replenishment frequencies for the
cated relatively close to the nanostores. direct set-up.
When the average distance for the first tier varies, the distance for
the second tier is fractioned as one fourth of the first tier’s distance,
than 50 items, the direct set-up outperforms the others. When changing
while tier 3 is set to one twelfth of the first tier’s distance. This is done
the UCC percentage to 10% instead of 50%, the UCC set-up is cheaper
to keep the network balanced, i.e. keep the distances between the de-
versus the direct set-up when demand levels are higher than 100 per
pots relative. Again, the direct set-up outperforms the other set-ups.
company.
However, there is a turning point when the distance is about 36 km,
When combining demand levels and replenishment frequencies for
where the cost per item starts to increase rapidly for the direct set-up.
the current direct set-up, the results show that at low demand levels,
This is due to the fact that the shift length constraint is reached. The
such as 50 items per month, increasing the replenishment frequency by
driver is not able to drop off the full capacity of his vehicle because his
one causes the cost per item to increase by 100%. At higher demand
shift length is over and he needs to return to the depot. This causes
levels, the effect on the cost per item for increased replenishment fre-
vehicle fill rates to decrease, number of tours to increase and therefore
quencies is much lower. The cost per item is the same when the demand
cost per items to increase more rapidly. When the distance is more than
is only 50 items and the replenishment frequency is one versus the si-
42 km, a set-up with one extra cross-dock or UCC outperforms the
tuation in which demand is 200 items and replenishment frequency
current direct set-up. Thus, as distances increase, newer set-ups will
equals 4 (Fig. 5).
outperform the current set-up (Fig. 4).
The UCC set-up with different replenishment frequencies (2, 4, 8)
Another parameter that is changed is the congestion factor.
shows that when the frequency increases to 8, the UCC outperforms the
TomTom (2016) provides actual congestion levels for cities. Three
current set-up when the share of the company in the UCC is 45% or
different congestion levels are used: 1.0, 1.3 and 1.6. Only the direct
lower. When sharing more (lower percentage), thereby creating more
set-up is sensitive to different congestion levels. This shows that the
volume, the same costs per item are reached at a volume of 10%. This
driving time cost of the driver is relatively insensitive to varying levels
shows the power of consolidation.
of congestion, if the maximum shift length constraint has not been
Using smaller vehicles for the final tier shows that under the current
reached. For the direct set-up, however, the influence of the congestion
circumstances deploying a motorbike outperforms a small truck.
factor is noticeable. With a congestion level of 1.6, the direct set-up is
Transport distance costs are slightly higher but the wages are lower as
already outperformed by the XD set-up when distances reach 28 km or
only one employee is on a motorbike. When changing average demand
more. The congestion factor only has a big influence on the cost per
per store from 150 to 50 items per month, using a small truck is almost
item if the shift length constraint is used to its full potential, thereby
twice the cost of using a motorbike. In case of such low demand levels,
causing lower vehicle fill rates, an increased number of tours and thus
the bicycle also outperforms the small truck.
increased distances travelled.
It is also interesting to see the effect of time window regulations. By
changing the shift length of the driver from 8 to 4 h, set-up XD already
6. Discussion
outperforms the direct set-up when the average distance for the first tier
is more than 10 km under congestion.
6.1. Policy implications
Sensitivity analyses are also performed regarding the store requests.
The UCC outperforms all other set-ups for low monthly demand levels,
Under current circumstances, the direct set-up clearly is the most
smaller than approximately 50 items. When demand levels are higher
cost-effective from a company perspective. In the city under study there

Fig. 4. Costs per item for varying distances for all set-ups.

130
B. Kin et al.
Fig. 6. Distribution models for last mile logistics for replenishing nanostores in a mega-
city.
is a very high amount of stores leading to a high stop density and due to
the use of multiple branches the distances are kept very short. Under
different circumstances, the alternative distribution set-ups can become
more cost-effective. This is summarized in Fig. 6. As distances increase,
other set-ups outperform the current set-up. The trend of logistics
sprawl leading to the movements of logistics facilities outward to sub-
urbs and thus longer distances has to be taken into account in this re-
gard. This is especially relevant because increasing urbanization drives
up real estate costs which makes it unaffordable to keep logistics fa-
cilities in urban cores (Aljohani and Thompson, 2016). The alternative
set-ups also become more cost-effective when demand levels decrease;
otherwise, the company creates enough volume to supply directly.
When both distances are short and drop sizes are low − either because
of a higher replenishment frequency or low demand − the use of
smaller vehicles is more appropriate because it secures higher vehicle
fill rates. As Fig. 5 shows, with higher demand levels, increased fre-
quencies can be created at the same cost per item. An extra replenish-
ment round doubles the costs per item under low demand levels. Ex-
tending the 1-tier set-up to 3-tiers (UCC and XD) never leads to lower
costs. Due to the specific characteristics of the retail channel in this case
(e.g., lack of storage room), suppliers try to replenish as often as pos-
sible in order to secure shelf space, which can be done by increasing
replenishment frequency. As this leads to higher logistics costs, con-
solidation in a UCC is a viable option. In general, consolidation is an
interesting option from a sustainability perspective. It can be argued
that, even regardless of vehicle fill rates, the current supply whereby
stores are delivered separately with small quantities leads to multiple
vehicles in a small area and consequently to issues such as queuing and
congestion. From this perspective, it is therefore interesting not only to
consolidate shipments per store but also per area (Bretzke, 2013). An-
other finding from the sensitivity analyses reveals that time windows
regulations considerably influence the costs of the direct set-up. In line
with this, other restrictions might also influence the cost-effectiveness
of the set-ups. Indeed, in the past years authorities of (mega)cities in
emerging economies such as Beijing, Delhi, Tehran and São Paulo in-
creasingly imposed restrictions. This has to be taken into account in the
future. Although the study explicitly focuses on a dense urban area, for
the supply of nanostores in rural areas collaboration is almost inevitable
due to the long distances and low stop density. Therefore non-exclusive
distributors are often used in rural areas (Garza Ramirez, 2011).
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Case Studies on Transport Policy 6 (2018) 125–132
6.2. Future research
The developed mathematical model can also be used to cost-model
the last mile of other fragmented deliveries such as e-commerce. In
that case p is set to 1 and δ to 0. In order to further validate the model
it can be applied on other cities with different input parameters. In
line with this, it can be adapted to cost-model other – possibly more
disruptive – alternative set-ups. For instance, when cost-modelling the
use of battery electric vehicles one has to take into account the limited
distance and time (because of charging) and add this in the model.
Additionally, the location of charging infrastructure has to be con-
sidered (Bjerkan et al., 2016; Lebeau, 2016; Savelsbergh and Van
Woensel, 2016). In case of mobile transshipment facilities, the trans-
port mode for the non-final tier also becomes the depot. In addition to
transport costs, the investment rather than the rent has to be included
in the depot costs. Also, the depot cannot be variable as has been
assumed in this study for the cross-dock depot and UCC. Specifically
with regard to the city, vacant spots have to be available (Savelsbergh
and Van Woensel, 2016; Verlinde et al., 2014). In that case the Lo-
cation Routing Problem (LRP) also has to be considered (Cuda et al.,
2015; Hemmelmayr et al., 2012). An option that quickly grows in the
field of e-commerce are lockers. When calculating the costs with the
developed model, the costs of using the lockers (e.g., fee, investment)
have to be included on the one hand. On the other hand it is a form of
consolidation whereby the number of stops decreases and multiple
drops can be delivered at once (Morganti et al., 2014). In this study
the number and choice of vehicles has been determined by the vo-
lumes, stops and delivery frequencies. However, in practice fixed
contracts with 3PLs decrease the flexibility. In this regard crowd-
sourced deliverires and the Physical Internet concept provide inter-
esting future research avenues (Rougès and Montreuil, 2014). Alto-
gether, the developed model can be used to calculate the costs of
different set-ups in other cities for other types of receivers. Eventually
this leads to an overview of which parameters influence the costs of a
set-up compared to the currently used set-up. Consequently this con-
tributes to the transferability of different alternative set-ups between
urban areas based on their specific characteristics.
7. Conclusions
It becomes increasingly complex for companies to send their goods
into and throughout urban areas. At the same time UFT considerably
contributes to the unsustainability of our cities. This necessitates al-
ternative ways of delivering products. This study focuses on the most
inefficient deliveries of FMCG. Based on a literature study it is argued
that (cost) variables divided over three aspects (receiver, logistics and
city) determine the cost-effectiveness of an alternative distribution set-
up and the transferability to other areas. The aspects are mutually in-
fluencing. Regarding the city, for instance, variables such as the con-
gestion level and local personnel costs (wages) influence the costs of
delivering. The same applies to the volume and replenishment fre-
quency which is determined by the receiver attributes. To oper-
ationalize the variables, a mathematical model is built with input from
logistics cost models. The model can be used calculate the cost-effec-
tiveness of alternative distribution set-ups that contribute to more ef-
ficient and sustainable UFT. This is subsequently applied on a real case
in which a FMCG company supplies nanostores in a megacity in an
emerging economy via a distributor. Directly supplying nanostores is
the most cost-effective option when drop sizes are high and distances
short. When only distances become long, cross-docking becomes in-
teresting, whereas at lower drop size collaborating in a UCC is more
viable. Using a UCC also becomes interesting when authorities imple-
ment more restrictions such as narrower time windows and when vo-
lume is increased together with other companies. When drop sizes are
low and distances are short, deploying smaller vehicles becomes in-
teresting.
B. Kin et al.
Increased fragmentation of freight flows is a more recent trend in
research. Especially with a huge expected increase in e-commerce
globally, future research should focus more on last mile distribution set-
ups that support low drop sizes, high flexibility, and a high service level
in both urban and rural areas. The model can be further validated by
applying it on other cities as well as by modelling other set-ups. For this
research, the estimation method of Daganzo (2005) is used to estimate
the length of the VRP. When switching from strategic level to tactical
and operational level, heuristics to solve multi-echelons VRPs are
needed to find the optimal route. Further improvement relates to in-
cluding a variable stop time depending on the drop size, variable de-
mand levels and replenishment frequencies and adding more restric-
tions. Examples of the latter are weight limits or distance limits to
vehicles in the case of electric vehicles.
Acknowledgement
The authors are grateful for the support by the FMCG company. This
study is based on the Master Thesis by Joeri Spoor, titled Replenishing
Nanostores in Megacities for a consumer packaged goods company,
University of Technology Eindhoven, 2016.
Appendix A. Supplementary data
Supplementary data associated with this article can be found, in the
online version, at https://doi.org/10.1016/j.cstp.2017.11.009.
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