Hybrid Distribution Strategies for Improved Supply Chain Efficiency

Abstract

Amid increasing pressure to decarbonize logistics operations, hybrid distribution strategies that combine direct plant shipments with conventional two-echelon networks are gaining attention in the fast-moving consumer goods (FMCG) sector. This thesis investigates the trade-offs between logistics costs and environmental performance in such hybrid distribution networks through a case study at Procter & Gamble (P&G). A novel flow-based adaptation of the two-echelon vehicle routing problem (2E-VRP) is developed and implemented within a multi-objective optimization framework. Applying scalarization and ε-constraint methods, the analysis shows that while direct shipments from plants can lower logistics costs, they do not necessarily improve environmental performance. When emissions are directly minimized, two-echelon flows are often preferred due to their higher vehicle utilization. Sensitivity analyses reveal that carbon pricing alone has limited influence on routing decisions, whereas optimizing emissions under cost constraints leads to more sustainable but more centralized logistics patterns. These findings indicate a structural misalignment between cost-efficient and environmentally optimal strategies. The study underscores the importance of route-specific eligibility rules and operational constraints, such as minimum vehicle fill rates, to support logistics decisions aligned with sustainability goals.