Solving Large-Scale Two-Echelon Location Routing Problems in City Logistics

Logistic service providers increasingly focus on two-echelon distribution systems to efficiently manage thousands of deliveries in urban environments. Effectively operating such systems requires designing cost-efficient delivery networks while addressing the challenges of increasing e-commerce demands. In this context, we focus on a two-echelon location routing problem with mobile depots and direct shipment, where decisions involve locating micro-depots, and designing first and second-level routes. Our model also incorporates the flexibility of direct shipments from the main depot to customers. To solve such large-scale problems efficiently, we propose a metaheuristic approach that integrates a set cover problem with an adaptive large neighborhood search (ALNS). Our ALNS approach generates a set of promising routes and micro-depot locations using destroy and repair operators while using a local search for intensification. We then utilize the set cover problem to find better network configurations. Additionally, we present a decomposition-based cluster-first, route-second approach to solve large-scale instances efficiently. We show the efficacy of our algorithm on well-known benchmark datasets and provide managerial insights based on a case study for the city of Munich. Our decomposition approach provides comparable results while reducing computational times by a factor of 15. Our case study results show that allowing direct shipment can reduce total costs by 4.7% and emissions by 11%, while increasing truck utilizations by 42%. We find that integrating both stationary and mobile micro-depots, along with allowing direct shipments, can reduce total costs by 5.9% compared to traditional two-echelon delivery structures.