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.