Social cost reduction by optimizing the delivery network and changing the operational strategy: Study on Seoul-city cases

Abstract

With increasing demand for parcel delivery services, social expenses, including the growth of delivery vehicles and distances, have risen accordingly. Securing parcel delivery facilities for services in large cities is particularly challenging because of high land costs and citizens' complaints about facilities. Therefore, logistics sprawl, in which facilities are situated relatively far from the destination, on the outskirts of the city, or in nearby areas, has led to a dramatic increase in social expenses. In this study, we calculated the social cost of parcel delivery based on current cases in Seoul. Our results revealed that with the optimal allocation of demand areas to the facility alone, the social cost decreased by 40 % in these cases, representing a considerable decrease. Moreover, we discovered that by securing alternative facility locations in addition to the original facilities and optimizing them, social costs can further decrease by 53 %. Additionally, considering the predictable increase in environmental costs, securing additional alternatives for facility locations could help mitigate the rising social costs resulting from increased environmental costs. Accordingly, this study proposes policy directions for the government and public authorities to minimize the social costs arising from parcel delivery. Additionally, the findings of this study suggest that the results can be utilized by companies to develop new management strategies, such as joint logistics centers, within the evolving policy environment.