Hub Location & Hub

Network Design

Spring School on Supply Chain and

Transportation Network Design
HEC Montreal
May 14, 2010

James F. Campbell
College of Business Administration &
Center for Transportation Studies
University of Missouri-St. Louis, USA
1
Outline
Introduction, examples and background.
Classic hub location models.
Interesting recent research.
I. Better solutions for classic models.
II. More realistic and/or complex problems
III. Dynamic hub location.
IV. Models with stochasticity.
V. Competition.
VI. Data sets.
Conclusions.

2
Design a Network to Serve 32 Cities

32 demand points (origins and destinations)

32*31/2 = 496 direct connections
3
 One Hub

Single hub: Provides a

Access arc connect non-hubs to hubs switching, sorting and
connecting (SSC) function.
Hub networks concentrate flows to exploit
economies of scale in transportation. 4
Two Hubs and One Hub Arc

1 hub arc & 2 connected hubs:

Multiple Allocation Hubs also provide a consolidation
and break-bulk (CB) function.

Flows are further concentrated on hub arcs. 5

Multiple Allocation Four Hub Median

4 fully connected hubs

38 access arcs

6
Single Allocation Four Hub Median

4 fully connected hubs

28 access arcs

7
Multiple Hubs and Hub Arcs

8
Final Network

6 connected hubs,
1 isolated hub and
8 hub arcs

9
Hub Networks
Allow efficient many-to-many transportation:
- Require fewer arcs and concentrate flows to exploit
transportation economies of scale.
Hub arcs provide reduced cost transportation between
two hubs (usually with larger vehicles).
- Cost: i k m j : Cijkm = cik + ckm + cmj j
- Distance: i k m j = dik + dkm + dmj

i m
k
Hub nodes provide:
- Sorting, switching and connection.
- Consolidation/break-bulk to access reduced cost hub arcs.
10
Hub Location Applications
Passenger and Freight Airlines:
- Hubs are consolidation airports and/or
sorting centers.
- Non-hubs are feeder airports.
Trucking:
- LTL hubs are consolidation/break-bulk terminals.
- Truckload hubs are relay points to change drivers/tractors.
- Non-hubs are end-of-line terminals.
Postal operations:
- Hubs are sorting centers; non-hubs are regional post offices.
Public transit:
- Hubs are subway/light-rail stations.
- Non-hubs are bus stations or patron o/ds.
Computer & telecom networks.
11
Hub Location Motivation

Deregulation of transportation in USA:

- Airlines (1978).
- Trucking (1980).
Express delivery industry (Federal Express began
in 1973).
- Federal Express experiences:
Developed ILP models in ~1978 to evaluate 1 super-hub
vs. 4 hubs.
Used OR models in mid-1970s to evaluate adding
bypass hubs to handle increasing demand.

Large telecommunications networks.

12
Hub Location Research

Strategic location of hubs and design of hub

networks.
- Not service network design, telecom, or continuous
location research.

Began in 1980s in diverse fields:

- Geography, Transportation, OR/MS, Location theory,
Telecommunications, Network design, Regional science,
Spatial interaction theory, etc.

Builds on developments in regular facility location

modeling.

13
Hub Location Foundations
First hub publications: Morton OKelly (1985-1987):
- Transportation Science, Geographical Analysis, EJOR:
First math formulation (quadratic IP).
2 simple heuristics for locating 2-4 hubs with CAB data set.
- Focus on single allocation and schedule delay.
Continuous approximation models for many-to-
many transportation.
- Built on work with GM by Daganzo, Newell, Hall, Burns,
etc. in 1980s.
- Daganzo, 1987, The break-bulk role terminals in many-
to-many logistics networks, Operations Research.
Considered origin-hub-hub-destination, but without
discounted inter-hub transportation.
14
Hub Location & Network Design

Given:
- Network G=(V,E)
- Set of origin-destination flows, Wij
- Discount factor for hub arcs, 0<<1

Design a minimum cost network with hub nodes

and hub arcs to satisfy demand Wij.

Select hub nodes and hub arcs.

Assign each non-hub node to hubs.

15
Traditional Discrete Location Models
Demand occurs at discrete points.
Demand points are assigned to the closest (least
cost) facility.
Objective is related to the distance or cost between
the facilities and demand points.
Classic problems:
- p-median (pMP): Minimize the total transportation cost (demand
weighted total distance).
- Uncapacitated facility location problem (UFLP): Minimize the sum of
fixed facility and transportation costs.
- p-center: Minimize the maximum distance to a customer.
- Set Covering: Minimize the # of facilities to cover all customers.
- Maximum covering: Maximize the covered demand for a given
number of facilities (or given budget).
16
Discrete Hub Location Models
Demand is flows between origins and destinations.
Non-hubs can be allocated to multiple hubs.
Objective is usually related to the distance or cost for
flows (origin-hub-hub-destination).
- Usually, all flows are routed via at least one hub.

Analogous classic hub problems:

- p-hub median (pMP): Minimize the total transportation cost
(demand weighted total distance).
- Uncapacitated hub location problem (UHLP): Minimize the sum of
fixed hub and transportation costs.
- p-hub center: Minimize the maximum distance to a customer.
- Hub Covering: Minimize the # of hubs to cover all customers.
- Maximum covering: Maximize the covered demand for a given
number of hubs (or given budget).
17
Hub Location Research

Very rich source of problems - theoretical and

practical.
Problems are hard!!
A wide range of exact and heuristic solution
approaches are in use.
Many extensions: Capacities, fixed
costs for hubs and arcs, congestion,
hierarchies, inter-hub and access
network topologies, competition,
etc.
Many areas still awaiting good
research.
18
Hub Location Literature

Early hub location surveys/reviews:

- Campbell, 1994, Studies in Locational Analysis.
23 transportation and 9 telecom references.
- OKelly and Miller, 1994, Journal of Transport Geography.
- Campbell, 1994, Integer programming formulations of
discrete hub location problems, EJOR.
- Klincewicz, 1998, Location Science.
Recent surveys:
- Campbell, Ernst and Krishnamoorthy, 2002, in Facility
Location: Applications and Theory.
- Alumur and Kara, 2008, EJOR (106 references).
- Computers & Operations Research , 2009, vol. 36.
Much recent and current research 19
Hub Median Model
p-Hub Median: Locate p fully interconnected hubs
to minimize the total transportation cost.
Assume:
(1) Every o-d path visits at least 1 hub.
(2) Inter-hub cost per unit flow is discounted using .
3 Hub Median Boston
Optimal Solution Chicago

Cleveland

Dallas

20
Hub Median Formulations
Cost: i k m j : cik + ckm + cmj
j
transfer
i
k m
Single allocation:
Zik= 1 if node i is allocated to a hub at k ; 0 otherwise
Zkk= 1 if node k is a hub; 0 otherwise

Min Wij

cik Z ik ckm Z ik Z jm c jm Z jm

i, j k k m m
Subject to Z (n p 1)Z k Link flows and hubs
i
ik kk

k
Z ik 1 i Serve all o-d flows

Z
k
kk p Use p hubs

Z ik {0,1} i, k 21
 Hub Median Formulations
Multiple allocation: 4 subscripted path variables
Xijkm= fraction of flow that travels i-k-m-j
Hk = 1 if node k is a hub; 0 otherwise
Cost: i k m j : Cijkm = cik + ckm + cmj

Min
i j j
(Wij W ji ) Cijkm X ijkm
k m

Subject to X 1
k m
ijkm i, j , i j Serve all o-d flows

k
Hk p Use p hubs

X ( X
ijkk ijkm X ijmk ) H k i, j , k , i j Link flows & hubs
m k

X ijkm 0 i, j, k , m, i j
H k 0,1 k 22
Hub Median Formulations
Multiple allocation: 3 subscripted flow variables
j
i transfer X imj
Zik k Y ikm m

Zik= flow from origin i to hub k

Y ikm= flow originating at i from hub k to hub m
X imj= flow originating at i from hub m to destination j

Min


i

cik Z ik i
ckmYkm i
cm j X m j

k k m m j

23
Hub Median Formulations
Multiple allocation 3 subscripted flow variables

Min

k
i
cik Z ik i
ckmYkm i
cm j X m j

k m m j
Subject to k Z ik j Wij i

Serve all o-d flows

m
i
X mj Wij i, j

k
Hk p Use p hubs

m
i
Ykm X kj
j
i
Ymi k Z ik 0
m
i, k Flow balance

j Wij i, k
Z ik H k
Link flows & hubs
X mji H m Wij m, j
i i

H k 0,1 k i
Z ik , Ykm i
, Xm j 0 i, j , k , m 24
Hub Center and Hub Covering
Introduced as analogues of regular facility center and
covering problemsbut notion of covering is different.
Campbell (EJOR 1994) provided 3 types of
centers/covering:
- Maximum cost/distance for any o-d pair
- Maximum cost /distance for any single link in an o-d path.
- Maximum cost/distance between an o/d and a hub.
j
transfer
i
k m
Much recent attention:
- Ernst, Hamacher, Jiang, Krishnamoorthy, and Woeginger,
2009, Uncapacitated single and multiple allocation p-hub
center problems, Computers & OR
25
Hub Center Formulation
Xik = 1 if node i is allocated to hub k, and 0 otherwise
Xkk = 1 node k is a hub
z is the maximum transportation cost between all od pairs.
rk = radius of hub k (maximum distance/cost between hub k and
the nodes allocated to it).

Min z
Subject to X
k
ik 1 i
Serve all o-d flows
X ik X kk i, k Link flows & hubs

X
k
kk p Use p hubs

rk cik X ik i, k Hub radius

z rk rm ckm k m Objective
X ik {0,1} i, k k
26
Hub Location Themes
I. Better solution algorithms for classic problems.
II. More realistic and/or complex problems.
- More general topologies for inter-hub network and access
network.
- Objectives with cost + service.
- Other: multiple capacities, bicriteria models, etc.
III. Dynamic hub location.
IV. Models with stochasticity.
V. Competition.
VI. Data sets.

27
I. Better solutions for classic problems

Improved formulations lead to better solutions and

solving larger problems

Hamacher, Labb, Nickel, and Sonneborn, 2004 Adapting

polyhedral properties from facility to hub location
problems, Discrete Applied Mathematics.

Marn, Cnovas, and Landete, 2006, New formulations for

the uncapacitated multiple allocation hub location
problem, EJOR.
- Uses preprocessing and polyhedral results to develop tighter
formulations.
- Compares several formulations.

28
Better solutions for classic problems
Contreras, Cordeau, and Laporte, 2010, Benders
decomposition for large-scale uncapacitated hub location.
- Exact, sophisticated solution algorithm for UMAHLP.
- Solves very large problems with up to 500 nodes (250,000
commodities).
- ~2/3 solved to optimality in average ~8.6 hours.

Contreras, Daz, and Fernndez, 2010, Branch and price for

large scale capacitated hub location problems with single
assignment, INFORMS Journal on Computing.
- Single allocation capacitated hub location problem.
- Solves largest problems to date to optimality (200 nodes) up to
12.5 hrs.
- Lagrangean relaxation and column generation and branch and
price. 29
II. More Realistic and/or Complex Problems
More general topologies for inter-hub network and
access network.
- Inter-hub network: Trees, incomplete hub networks, isolated
hubs, etc.
- Access network: Stopovers, feeders, routes, etc.
Better handling of economies of scale.
- Flow dependent discounts, flow thresholds, etc.
- Restricted inter-hub networks.
Objectives with cost + service.
Others: multiple capacities, bicriteria models, etc.

30
Weaknesses of Classic Hub Models

Hub center and hub covering models:

- Not well motivated by real-world systems.
- Ignore costs: Discounting travel distance or
time while ignoring costs seems odd.

Hub median (and UHLP) models:

- Assume fully interconnected hubs.
- Assume a flow-independent cost discount on
all hub arcs.
- Ignore travel times and distances.

31
Hub Median Model
p-Hub Median: Locate p fully interconnected hubs
to minimize the total transportation cost.
- Hub median and related models do not accurately model
economies of scale.
- All hub-hub flows are discounted (even if small) and no access
arc flows are discounted (even if large)!

3 Hub Median Boston

Optimal Solution Chicago

Cleveland

Dallas
low flows on hub arcs
32
Better Handling of Economies of Scale
Flow dependent discounts: Approximate a non-linear
discounts by a piece-wise linear concave function.
- OKelly and Bryan, 1998, Trans. Res. B.
- Bryan, 1998, Geographical Analysis.
- Kimms, 2006, Perspectives on Operations
Research.

More general topologies for inter-hub network and

access network
- Tree of hubs: Contreras, Fernndez and Marn, 2010, EJOR.
- Incomplete hub networks: Alumur and Kara, 2009,
Transportation Research B
- Hub arc models: Campbell, Ernst, and Krishnamoorthy, 2005,
Management Science. 33
Hub Arc Model
Hub arc perspective: Locate q hub arcs rather than p
fully connected hub nodes.
- Endpoints of hub arcs are hub nodes.
Hub Arc Location Problem: Locate q hub arcs to
minimize the total transportation cost.
q hub arcs and 2q hubs.
Assume as in the hub median model that:
Every o-d path visits at least 1 hub.
Cost per unit flow is discounted on q hub arcs using .
Each path has at most 3 arcs and one hub arc (origin-hub-
hub-destination): model HAL1.

34
Hub Median and Hub Arc Location

Hub Median Hub Arc Location

p=3 q=3

3 hubs & 5 hubs &

3 hub arcs 3 hub arcs

35
Time Definite Hub Arc Location
Combine service level (travel time) constraints with cost
minimization to model time definite transportation.
Motivation: Time definite trucking:
- 1 to 4 day very reliable scheduled service between terminals.
- Air freight service by truck!

Transit Drop-off Pickup

Dest Distance Days at STL at Dest
ATL 575 2 22:00 7:00
JFK 982 2 22:00 9:00
MIA 1230 3 22:00 8:00
ORD 308 1 22:00 9:00
SEA 2087 4 22:00 8:30

Campbell, 2009, Hub location for time definite transportation,

Computers & OR. 36
Service Levels
Limit the travel distance via the hub network to ensure
the schedule (high service level) can be met with
ground transport.
High Service Level
Direct o-d Distance Max Travel Distance
0 - 400 miles 600 miles
400 - 1000 miles 1200 miles
1000 - 1800 miles 2000 miles

Problems with High service levels (High SL) have

reduced sizes, since long paths are not feasible.

Formulate as MIP and solve via CPLEX 10.1.1.

37
 Time Definite Hub Arc Solutions for CAB
=0.2, p=10, and q=5

Low SL solution - 9 hubs!

Medium SL solution - 9 hubs!

High SL solution - 10 hubs

38
Time Definite Hub Locations
High service levels make problems easier.
High service levels force some hub locations.
Good hub cities:
- Large origins and destinations.
Chicago, New York, Los Angeles.
- Large isolated cities near the perimeter.
Miami, Seattle.
- Some centrally located cities.
Kansas City, Cleveland.
Poor hub cities:
- Medium or small cities near large origins & destinations.
Tampa.

39
Models with Congestion
Elhedhli and Wu, 2010, A Lagrangean heuristic for hub-
and-spoke system design with capacity selection and
congestion, INFORMS Journal on Computing.
- Single allocation.
- Minimize sum of transportation cost, fixed cost and congestion
cost.
- Congestion at hub k:

i
W Z j
ij ik

Congestionk
Capacity W Z
k ij ik
i j

- Uses multiple capacity levels.

- Solves small problems up to 4 hubs and 25 nodes to
within 1% of optimality.
40
Another Model with Congestion
Koksalan and Soylu, 2010, Bicriteria p-hub location
problems and evolutionary algorithms, INFORMS
Journal on Computing.
- Two multiple allocation bicriteria uncapacitated p-HMP models.
Model 1: Minimize total transportation cost and minimize total
collection and distribution cost.
Model 2: Minimize total transportation cost and minimize maximum
delay at a hub.
- Delay (congestion) at hub k:

i j
Wij X ijkm
m
Congestionk
Capacityk

- Solves with favorable weight based evolutionary

algorithm.

41
III. Dynamic Hub Location
How should a hub network respond to changing demand??

Contreras, Cordeau, Laporte, 2010, The dynamic hub

location problem, Transportation Science.
- Multiple allocation, fully interconnected hubs.
- Dynamic (multi-period) uncapacitated hub location with up to
10 time periods.
- In each period, adds new o-d pairs (commodities) and increase
or decrease the flow for existing o-d pairs.
- Hubs can be added, relocated or removed.
- Solves up to 100 nodes and 10 time periods with branch and
bound with Langrangean relaxation.

42
Isolated Hubs
Isolated hubs are not endpoints of hub arcs.
- Provide only a switching, sorting, connecting function; not a
consolidation/break-bulk function.
- Give flexibility to respond to expanding demand with
incremental steps.

How can isolated hubs be used, especially in response

to increasing demand in a fixed region and demand in
an expanding region.
Campbell, 2010, Designing Hub Networks with
Connected and Isolated Hubs, HICSS 43
presentation.

43
Hub Arc Location with Isolated Hubs
Locate q hub arcs with p hubs to minimize the
total transportation cost.
If p>2q there will be isolated hubs; When p2q isolated
hubs may provide lower costs.
Each non-hub is connected to one or more hubs.

Key assumptions:
1. Every o-d path visits at least 1 hub.
2. Hub arc cost per unit flow is discounted
using .
3. Each path has at most 3 arcs and one hub
arc: origin-hub-hub-destination.

Cost: i-k-m-j = dik d km d mj

44
 Hub Network Expansion
No SL, =0.6
Add a hub arc between
existing hubs
# of hubs , # of hub arcs, # isolated hubs
Transportation Cost
Add a new isolated hub

3, 3, 0
6, 6, 0
949.2
803.5
3, 2, 0 4, 3, 1 5, 4, 1 6, 5, 1
965.2 890.6 843.2 812.0
4, 2, 1 5, 3, 1 6, 4, 2 7, 5, 2
906.6 859.1 825.7 801.7
Start with 5, 2, 2 6, 3, 2 7, 4, 3
a 3-hub 875.7 841.6
optimal
815.3
solution 6, 2, 3 7, 3, 3
862.7 831.2

45
 Geographic Expansion
q=3 hub arcs

Allow 1 Isolated Hub

Add 5 1 isolated hub, Cost=914
West-
Coast
Optimal with no west-coast cities
cities, p=4
No isolated hubs, Cost=1085

Allow hub arcs to be moved

1 isolated hub, Cost=864 46
Findings for Isolated Hubs
Isolated hubs are useful to respond efficiently to:
- an expanding service region and
- an increasing intensity of demand.
Adding isolated hubs may be a more cost effective than
adding connected hubs (and hub arcs).
Isolated hubs seem most useful in networks having:
few hub arcs, small values (more incentive for
consolidation), and/or high service levels.
With expansion, the same hubs are often optimal but
the roles change from isolated to connected.

47
IV. Models with Stochasticity
How should stochasticity be incorporated??
Lium, Crainic and Wallace, 2009, A study of demand
stochasticity in service network design, Transportation Science.
- Does not assume particular topology and shows hub-and-spoke
structures arise due to uncertainty.
consolidation in hub-and-spoke networks takes place not necessarily
because of economy of scale or other similar volume-related reasons,
but as a result of the need to hedge against uncertainty

Sim, Lowe and Thomas, 2009, The stochastic p-hub center

problem with service-level constraint, Computers & OR.
- Single assignment hub covering where the travel time Tij is
normally distributed with a given mean and standard deviation.
- Locate p hubs to minimize so that the probability is at least
that the total travel time along the path iklj is at most . 48
V. Competitive Hub Location
Suppose two firms develop hub networks to compete for
customers.
Sequential location - Maximum capture problem:
- Marianov, Serra and ReVelle, 1999, Location of hubs in a
competitive environment, EJOR.
- Eiselt and Marianov, 2009, A conditional p-hub location
problem with attraction functions, Computers & OR.
Stackelberg hub problems:
- Sasaki and Fukushima, 2001, Stackelberg hub location
problem, Journal of Operations Research Society of Japan.
- Sasaki, 2005, Hub network design model in a competitive
environment with flow threshold, Journal of Operations
Research Society of Japan.

49
Stackelberg Hub Arc Location
Use revenue maximizing hub arc models with Stackelberg
competition.
Two competitors (a leader and follower) in a market.
- The leader first optimally locates its own qA hub arcs, knowing
that the follower will later locate its own hub arcs.
- The follower optimally locates its own qB hub arcs after the
leader, knowing the leaders hub arc locations.
Assume:
- Competitors cannot share hubs.
- Customers travel via the lowest cost path in each network.
The objective is to find an optimal solution for the leader -
given the follower will subsequently design its optimal hub
arc network.
50
How to Allocate Customers among
Competitors?
Customers are allocated between competitors based on
the service disutility, which may depend on many
factors:
- Fares/rates, travel times, departure and arrival times,
frequencies, customer loyalty programs, etc.
For a strategic location model, we assume revenues
(fares/rates) are the same for each competitor.
We focus on disutility measures in terms of travel
distance (time) and travel cost.
Key factors may differ between passenger and freight
transportation.

51
Cost & Service

For freight, a shipper does not care about the path

as long as the freight arrives on time.
- Often pick up at end of day and deliver at the
beginning of a future day.
- Allocate between competitors based on relative cost
of service.
Passengers are more sensitive to the total travel
time (though longer trips allow more circuity).
- Allocate between competitors based on relative
service (travel time or distance).

52
Distance Ratio and Cost Ratio

Distance ratio (passengers):

DijA: The distance for the trip from i to j that achieves the minimum
cost for Firm A.
DijB : The distance for the trip from i to j that achieves the minimum
cost for Firm B.
DRij =(DijADijB) /(DijA +DijB) j
l
i k
Cost ratio (freight):
CijA : The minimum cost for the trip from i to j for Firm A.
CijB : The minimum cost for the trip from i to j for Firm B.
CRij =(CijACijB) /(CijA +CijB)

As DijA (or CijA) 0, DRij (or CRij) -1, and Firm A captures all revenue.
53
5-level Step Function for Customer Allocation
Fraction of demand
captured by Firm A
ijA(xA,xB) = fraction of
demand captured by Firm A
CRij or Drij ijA(xA,xB)
r1 100%
r1 to r2 75%
r2 to r2 50%
r2 to r1 25%
> r1 0%

r1 and r2 determine selectivity level of customers.

r1 = r2 = 0 is an all-or-nothing allocation.
r1 = 0.75, r2 = 0.50 is insensitive to differences.
54
Notation
Given:
- V = set of demand nodes, V (|V |=n)
- Wij = set of origin-destination flows
- Fij = set of origin-destination revenues (e.g. airfares)
- dij = distance between i and j
- Cijkl = unit cost for the path i k l j = dik+dkl+dlj s
- = cost discount factor for hub arcs, 0<1.
Ykli

k l
i j
Decision variables:
- xijklA (xijklB) = flow for i k l j for Firm A (B)
- yklA (yklB) = 1 if there is a hub arc kl for Firm A (B)
- zkA (zkB) = 1 if there is a hub at city k for Firm A (B)
55
 HALCE-B (Firm Bs problem)

Maximize FijWij (1 ijA ( x A , x B )) Maximize Bs total

iV j i revenue
s.t. kl
y
k ,l
q B
, B

Hub arcs
z 1 z
B
k
A
k k V ,
& hubs
z y y k V ,
B B B
k kl lk
l k l k

xijkl y kl i, j , k , l V , j i, l k ,
B B

Network
z i, j , k V , j i,
B B
x ijkk k
Flow
1
x
B
ijkl
k ,l
i, j V ,

x , yBB
ijkl
kl , z
B
k {0,1}
56
 HALCE-A (Firm As Problem)

Maximize FijWijijA ( x A , x B ) Maximize As total

iV j i revenue
s.t. kl
y A
q
kV l k
A
,
Hub arcs
z kA yklA ylkA k V , & hubs
l k l k

y klA i, j , k , l V , j i, l k ,
A
x ijkl

xijkk z kA i, j , k V , j i,
A
Network
x
k ,l
A
ijkl 1 i, j V , Flow

A
xijkl , yklA , z kA {0,1},
Firm B finds an
[ x , y , z ] ( x , y , z ).
B B B A A A
optimal solution 57
Optimal Solution Algorithm

Smart enumeration algorithm:

Enumerate all of Firm As sets of qA hub arcs.
For each set of Firm As hub arcs, use bounding tests to
enumerate only some of Firm Bs qB hub arcs and only
some OD pairs.
Bounding tests are effective and allow problems with
up to 3 hub arcs for Firm A and Firm B to be solved to
optimality.

But we would still like to solve larger problems

58
540 Problem Scenarios with CAB data

2 OD revenue sets:
- airfare : IATA Y class airfares
2500

- distance : direct OD distance 2000

3 levels of customer selectivity:

Airfare (USD)
1500

- low: (r1, r2)=(0.75,0.25) 1000

- medium: (r1, r2)=(0.083,0.015) 500

- high: (r1, r2)=(0,0) (all-or-nothing) 0

0 1000 2000 3000

2 Customer allocation schemes:

Direct Distance (miles)

- Distance ratio allocation (passenger)

- Cost ratio allocation (freight)
5 values of : 0.2, 0.4, 0.6, 0.8, 1.0
Up to 3 hub arcs for Firms A and B.
59
Results: High Customer Selectivity
Distance ratio allocation
qA=qB=2, =0.6

Revenue = airfare Revenue = distance

Red lines: Firm As optimal solution

Blue lines: Firm Bs optimal solution
60
Hub Use with Distance Ratio Allocation

92.2%

86.3%
47.0%

57.4% 47.8%

Top hub arcs for Firm A

Top hub arcs for Firm B
61
 Cost Ratio vs. Distance Ratio

Revenue=distance, qA=qB=3, =0.6

Over 67% of revenues are Only 15% of revenues are
from paths with a hub arc. from paths with a hub arc.

Cost Ratio allocation (freight) Distance ratio allocation (passengers)

Firm As hubs=4,6,8,12,17,22 Firm As hubs=1,4,12,14,17,22

Red lines: Firm As optimal solution

Blue lines: Firm Bs optimal solution
62
Findings

The leader (Firm A) usually has an advantage, but not

always (first entry paradox).
Distance ratio allocation encourages one-stop routes
(as preferred by passengers).
Cost ratio allocation encourages more circuitous two-
stop routes (as in freight transportation).
Large origins/destinations have a large advantage for
hub location.
- Peripheral cities have a geographic disadvantage for hub
location.
Though the optimal hub arcs vary considerably, the
competitors generally use the same optimal hub nodes.
63
Competitive Model Conclusions

There are some interesting differences between the

leaders and followers strategies:
- The leader tends to use fewer hubs more intensively, but the
follower performs about as well in many cases!
- The leader tends to capture the higher revenue customers,
while the follower captures more, but less valuable, customers.
Optimal network design can be very sensitive to the
customer allocation mechanisms.

64
VI. Hub Location Data Sets

Much work has been done with only a few

data sets:
- CAB25: 25 cities in US.
- AP: up to 200 postal locations in Sydney, Australia.
- Turkish data: 81 nodes in Turkey

What should alpha be?

65
CAB25 Data Set
25 US cities with symmetric flows based on air passenger traffic
in 1970.
No flow from a node to itself (Wii=0).
Subsets are alphabetical.

1500

1100

700
COG

1-median
300

-100 0 400 800 1200 1600 2000 2400 2800

66
AP Data Sets
Up to 200 postal codes in Sydney with asymmetric flows of mail
from 1993(?) and given collection, transfer and distribution costs.
42.4% of flows (including all flows Wii) are at minimum level of
0.01 (mean flow=0.0995)
Smaller data sets are created to be a reasonable approximation
of the larger problem.

AP200 AP20
60000 60000

50000 50000

40000 40000

COG COG
30000 30000
Median
Median
20000 20000

10000 10000

0 0
0 20000 40000 60000 0 20000 40000 60000
67
Turkish network: TR81
81 nodes for provinces in Turkey with asymmetric flows
generated based on populations.
Often used with =0.9 (from interhub travel time discount).
Smaller versions selected in various ways.

TR81
43
COG
42
1-median
41

40

39

38

37

36
26 28 30 32 34 36 38 40 42 44
68
Concentration of Demand

Cumulative Demand Curves

0.9

0.8
cumulative % of demand

0.7
TR81 o-d flows
0.6
CAB25 o-d flows
0.5
AP200 nodes
0.4
TR81 nodes
0.3
CAB25 nodes
0.2

AP20 nodes
0.1

0
0 0.2 0.4 0.6 0.8 1
Cumulative % of o-d pairs or nodes

69
Spatial Distribution of Demand

Cumulative Distribution of Demand

0.8

0.6
% of flow

CAB25
AP20
0.4 AP200
TR81

0.2

0
0 0.2 0.4 0.6 0.8 1
% of max distance from median

70
Distribution of Demand
Optimal hub locations and hub networks reflect the
underlying distributions of flows (and aggregated
flows).
All data sets have flows heavily concentrated in a few
large nodes.
CAB is least centrally concentrated with large
peripheral demand centers.
AP has concentrated demand and is least evenly
distributed over the region.
- Subsets of AP may not be as similar to each other as
designed.
TR81 is most evenly distributed in space.
71
Alpha
What is the right value of?

Value Mode Location Reference

Ernst and Krishnamoorthy,
0.25-0.375 Truck-postal Australia
Location Science 1996
Limbourg and Jourquin,
0.7 Truck EU
Transportation Research E 2009
Limbourg and Jourquin,
0.365 Truck-rail EU
Transportation Research E 2009
Cunha and Silva,
0.7 1.0 LTL Brazil
EJOR 2007
Truck (time Chen, Networks and Spatial
0.4946 Taiwan
definite) Economics 2010

72
New Directions for Hub Location Research

Better, more realistic models:

- Incorporate cost, service and competition.
- Model relevant costs (especially economies of scale)
more accurately.
- More complex networks with longer paths and direct
routes.
Solve larger problems.(?)
Link to service network design.
Link to telecom hub location.
Link to practice.

73
Questions?

74