To co-locate or not? : location decisions and logistics concentration areas

Abstract

Anecdotal evidence shows that logistics parks are highly attractive for logistics firms.The colocation of logistics firms provides benefits such as greater availability of logistics personnel, access to other locations, and resource sharing.Despite the importance of these benefits in the location decisions of logistics firms, traditional facility location models do not consider them.This study therefore develops a model that accounts explicitly for one of the benefits, namely, the opportunity to combine transport flows.By collaboratively outsourcing transportation to a logistics service provider, co-located shippers can reduce their transport costs.However, locating in a logistics concentration area that is outside the center of gravity of customer demand results in additional shipping distances, suggesting the need to trade off the cost advantages and disadvantages that result from a location in a logistics concentration area.Shippers can use the proposed model to determine whether it is optimal to locate in a logistics concentration area.Numerical experiments show that on average, it is beneficial to locate in a logistics concentration area if it is within a distance that equals 0.15 times the square root of the surface of the region from the center of gravity of customer demand.In addition, firms obtain more gains from locating in a logistics concentration area if their shipment sizes are relatively small.