Hub Location and Network Design with Fixed and Variable Costs

Transportation hub networks are important for many large-scale logistics and supply chain systems. Basic hub location models rely on some key assumptions about the transportation cost that limits their practicality We present a new model for hub location and network design that uses fixed and variable transportation costs on all arcs, fixed costs for hubs, and also allows direct arcs. This approach allows the costs for the network components to drive the design of the network. We provide the basic model formulation and some illustrative results to show the types of optimal networks that are generated. The results document the wide range of network features that can be generated from the general cost structure in the model.