On Physical Internet Logistics: Modeling the Impact of Consolidation on Transportation and Inventory Costs

The physical Internet (PI) is a conceptual, innovative, and contemporary modular distribution logistics system that has garnered the interest of both researchers and practitioners as an alternative to conventional logistics. It aims to be more environmentally friendly, more socially responsible, and also more profitable. The key concept behind the PI logistics system is the routing of highly modular containers through transit centers (called PI hubs) to obtain a very efficient transport network that exploits consolidation opportunities. A systems model of the traditional and PI networks is developed as an aggregation of optimal point-to-point dispatch models between pairs of cities. This is then used to characterize the behavior of the traditional and PI logistics systems for several different logistics system key performance indicators. Based on the modeling assumptions in this paper, it is concluded that the benefits of the PI are in reducing the inventory cost and the total logistics system cost. However, a fewer truck trips are required in the traditional system, which also has a lower total order delivery time. While the transportation cost in the PI and traditional systems are comparable, the total cost of the PI system is significantly lower.