Investigating Opportunities and Challenges of Consolidation in Hub and Spoke Logistics Networks

Abstract

Over the past decade, the world has witnessed increasingly complex logistics systems in order to cope with the requirements and challenges of the globalized business environment. However, conventional logistics planning efforts focus on limited parts of the logistics network e.g. last mile distribution planning based on the milk-run problem, planning the long-haul logistics, and more recently integrated logistics planning between more than two tiers of the supply chain. From a broader perspective, logistics network from suppliers to end-customers is a huge many-to-many construct with inherent complexities of a cost-deriving nature. To reduce the planning complexities and the associated cost of logistics, the concept of hub-and-spoke has been developed and widely used. However, majority of the hub-and-spoke literature focuses on hub location and network design problem at a strategic level while scholar research is limited on related tactical and operational planning problems. Hub-and-spoke networks provide the opportunity to reduce logistics cost through effective consolidation of freights and customer orders. This paper investigates potential issues in hub-and-spoke networks and how consolidation helps reduce the associated logistics cost. Literature is reviewed and potential benefits and challenges of consolidation problems are illustrated through a developed conceptual framework. Different building blocks of the conceptual framework are discussed in more detail based on real case problems in practice.

Keywords: consolidation, freight transport, distribution planning, hub and spoke, logistics

Australian Academy of Business and Economics Review, vol 1, issue 2, October 2015, pp 120-134