Costs and CO2 emissions reductions for service suppliers by using hubs outside cities for supplying goods and services

Please note that this research was conducted in 2020. In the mean time, the suplier has been changing its logistics to more sustainable options, so that in 2025 they can meet with the zero emission standards. Furthermore, it has become clear that it is difficult to use a hub if there is a combination of deliveries, service-activities and return flows.

Context and relevance

Different suppliers and third-party logistic service providers deliver many different goods and services to the Heijendaal campus in Nijmegen every day. This results, among other things, in congestion and a lot of emissions at the campus as well as in the city of Nijmegen.

There exists a number of ways to reduce the traffic to and on the campus. Demand aggregation, combining deliveries is a potential option. Recently, both in academic literature and in practice, quite some attention has been paid to using hubs to realize the latter.

Service suppliers also have to take care of the supply and disposal of related goods. Hereafter, we focus on the latter suppliers while also providing useful insights for suppliers delivering only goods.

Research question

Consider a supplier delivering goods and related service activities to customers at and outside the Heijendaal campus. Could using a third party logistics service provider with a hub just outside Nijmegen reduce his costs and CO2 emissions, and could this also result in less traffic congestion to and on the Heijendaal campus and the city of Nijmegen?

Research approach/methodology

To answer the above question, we used scenario generation/analysis. Data were obtained from interviews with relevant stakeholders within the supplier and the third-party logistics service provider (3PL), by observing deliveries and service activities in practice, using data files with daily deliveries and long term service contracts specifications. The following freely available software tool has been used to calculate total driving distances and times: https://people.bath.ac.uk/ge277/vrp-spreadsheet-solver/.

Table 1 shows the different scenarios that have been studied.

Table 1  Scenarios

Scenario	Description
Scenario 0: present situation – supplier directly serves all its customers	The supplier takes care of all deliveries of goods and service activities for all its customers in the Nijmegen area (incl. customers at the campus) directly from its regional depot outside Nijmegen.
Scenario 1 – only campus customers are served from the city hub	All deliveries of goods and service activities to customers at the campus are outsourced to a third-party logistics service provider related to the city hub Nijmegen. All other customers in the Nijmegen area are still served directly by the supplier.
Scenario 2 – all customers on trips that include campus customers are served from the city hub	Not only the deliveries of goods and service activities to campus customers are outsourced, but also those to other customers visited on the same trip by the supplier. In case only customers outside the campus are visited on a trip, the deliveries and execution of service activities are taken care of by the supplier itself.
Scenario 3 – all Nijmegen area customers are served from the city hub	All deliveries of goods and execution of service activities in the Nijmegen area are outsourced to the third-party logistics service provider related to the city hub.

Results

Table 2 shows the results obtained for the different scenarios compared with the presently used scenario.

Table 2 Results scenarios

	CO2emissions	Time savings supplier *
Scenario 1	+2%	10%
Scenario 2	-6%	38%
Scenario 3	-7%	46%

* The total time that the supplier saves in replenishing and servicing compared to the present situation. Note that the 3PL spends additional time compared to the present situation at the hub for loading its vehicles.

The CO2 emissions are based on the distances between the different places to be visited during a trip by the supplier. These distances are provided by the simplest version of Bing Maps, while the CO2 emission data are retrieved from the producer of the vehicles presently used by the supplier.  A problem with the above simplified calculation are traffic jams that are not taken into account, resulting in more driving time and CO2 emissions. In case the third-party logistics service provider takes care of the last-mile distribution, this is done with electric vehicles using environmentally friendly generated electricity (we assumed zero CO2 emissions). The increase in CO2 emissions in Scenario 1 is due to the non-optimal location of the city hub relative to the campus for the supplier. For Scenarios 2 and 3, this disadvantage is outweighed by the CO2 reductions due to the use of electric vehicles. 

Due to outsourcing, the total traveling time and time for delivering goods and executing service activities at the customers decrease for the supplier. Note that the supplier still has to visit the city hub to deliver goods and pick up goods to be disposed of.  On the other hand, outsourcing the deliveries of goods and the execution of service activities leads to outsourcing costs. We have insufficient data to assess the effect on the actual costs for the supplier and the third party logistics service provider.

Impact on goals living lab

Sustainability: emission of vehicles to and on the campus
As shown in Table 2, CO2 emissions are reduced when the supplier uses the hub not only for its campus customers, but also for other customers on the trip or in the Nijmegen area, if the logistics service provider related to the city hub uses electric vehicles where the electricity is generated without emissions.

Liveability: number of vehicles to and on the campus
It is not possible to make a statement about this at this moment. More precise data about the time spent at every customer as well as the trucks used by the third party logistics service provider are required for this.

Costs
At this moment, it is hard to make estimates about the costs related to the new scenarios. This is partly due to the goods that have to be taken back in the context of service activities.

Service level
The service level would not change. At this moment, it is not clear whether the execution of the service activities within the buildings of the customers by another party would be acceptable for the customers.

Conclusions and futher research

Conclusions
It is not possible to make general statements about the usefulness and acceptance of hubs because this heavily depends on details. The case study shows that delivering more relatively small customers from a hub makes the use of a hub more promising. Note that quite some other 3PLs that deliver goods from different suppliers to the campus use a hub close to the city of Nijmegen.  In case of service activities, direct contact between the supplier and customers may also plays an important role.

Further research
To make using the city hub more attractive, it would be worthwhile to examine the possibilities for using the hub as a stock location for some or all goods for some or all customers in an area. The same applies to the execution of some activities related to the execution of service activities at customers.

Usually suppliers or 3PLs initiate using hubs in the context of cost reduction. It could be interesting to examine the possibility of initiating city hubs by customers.