Design of a two-echelon freight distribution system in last-mile logistics considering covering locations and occasional drivers

•A new variant of the two-echelon vehicle routing problem is developed.•Customers’ time windows, covering locations, and occasional drivers are considered.•A mixed integer linear programming model is formulated.•An effective adaptive large neighborhood search (ALNS) heuristic is developed.•The proposed ALNS is competitive with the state-of-the-art algorithms.•Sensitivity analyses are presented as managerial insights. This research addresses a new variant of the vehicle routing problem, called the two-echelon vehicle routing problem with time windows, covering options, and occasional drivers (2E-VRPTW-CO-OD). In this problem, two types of fleets are available to serve customers, city freighters and occasional drivers (ODs), while two delivery options are available to customers, home delivery and alternative delivery. For customers choosing the alternative delivery, their demands are delivered to one of the available covering locations for them to pick up. The objective of 2E-VRPTW-CO-OD is to minimize the total cost consisting of routing costs, connection costs, and compensations paid to ODs while satisfying all demands. We formulate a mixed integer linear programming model and propose an effective adaptive large neighborhood search (ALNS) for solving 2E-VRPTW-CO-OD. In addition, the proposed ALNS provides comparable results with those obtained by state-of-the-art algorithms for the two echelon vehicle routing problem, which is a special case of 2E-VRPTW-CO-OD. Lastly, the effects of occasional drivers and covering locations are presented.