Logistics Service Network Design for Time-Critical Delivery

Service network design is critical to the profitability of express shipment carriers. In this paper, we consider the problem of designing the integrated service network for premium and deferred express shipment delivery. Related existing models adapted to this problem are intractable for realistic problem instances, requiring excessive computer memory and solution times. We extend existing models and introduce a new approach to solve the resulting integrated service network design model. Our approach results in order or magnitude reductions in the numbers of variables to be considered in the integer program, allowing us to solve previously unsolvable problem instances. Applying our approach to the service network design problems of a large express package service provider, we demonstrate the potential for tens of millions of dollars in annual operating cost savings, and reductions in the numbers of aircraft needed to perform the service.