The impact of online shopping demand on physical distribution networks: A simulation approach

Purpose – The purpose of this paper is to study how cost efficiency and the reliability of a physical distribution network are affected by changes in online shopping demand and to suggest how logistics service providers can respond to such changes. Design/methodology/approach – Based on a discrete event simulation approach, possible adaptive measures to online shopping demand increase are tested at three levels of decision making in parcel distribution network: priority assignment in the main hub (operational), introduction of sub-hubs (tactical), and increase in the hub-terminal capacity (strategic). The feasibility of the simulation is tested with parameters adopted from the logistics service data of an existing major parcel carrier in South Korea. Findings – Findings from the simulation model suggest that the existing physical distribution network can improve its cost efficiency and service reliability by evolving into a more centralized network structure with increased capacity of transshipment facilities if the online shopping demand is expected to increase consistently over the long run. Practical implications – This research will help logistics service providers to have good insights into performances of their distribution networks at different levels of demand and to devise a plan for adaptation to meet future demand. Originality/value – This paper provides a framework to understand the complex relationship between network configurations, service levels, costs, and other decision-making processes with respect to changes in online shopping demand based on a simulation approach.