A bi-level approach for last-mile delivery with multiple satellites

Last-mile delivery is regarded as an essential, yet challenging problem in city logistics. One of the most common initiatives, implemented to streamline and support last-mile activities, are satellite depots. These intermediate logistics facilities are used by companies in urban areas to decouple last-mile activities from the rest of the distribution chain. Establishing a business model that considers different stakeholders’ interests and balances the economic and operational dimensions, is still a challenge. In this paper, we introduce a novel problem that broadly covers such a setting, where the delivery to customers is managed through satellite depots. The interplay and the hierarchical relation between the problem agents are modeled in a bi-level framework. Two mathematical models and an exact solution approach, properly customized for our problem, are presented. To assess the validity of the proposed formulations and the efficiency of the solution approach, we conduct an extensive set of computational experiments on benchmark instances. In addition, we present managerial insights for a case study on parcel delivery in Turin, Italy.