When Are Deliveries Profitable?:Considering Order Value and Transport Capacity in Demand Fulfillment for Last-Mile Deliveries in Metropolitan Areas

Cleophas, Catherine and Ehmke, Jan Fabian (2014) When Are Deliveries Profitable?:Considering Order Value and Transport Capacity in Demand Fulfillment for Last-Mile Deliveries in Metropolitan Areas. Business and Information Systems Engineering, 6 (3). pp. 153-163. ISSN 1867-0202

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Abstract

The paper aims to optimize the final part of a firm’s value chain with regard to attended last-mile deliveries. It is assumed that to be profitable, ecommerce businesses need to maximize the overall value of fulfilled orders (rather than their number), while also limiting costs of delivery. To do so, it is essential to decide which delivery requests to accept and which time windows to offer to which consumers. This is especially relevant for attended deliveries, as delivery fees usually cannot fully compensate costs of delivery given tight delivery time windows. The literature review shows that existing order acceptance techniques often ignore either the order value or the expected costs of delivery. The paper presents an iterative solution approach: after calculating an approximate transport capacity based on forecasted expected delivery requests and a cost-minimizing routing, actual delivery requests are accepted or rejected aiming to maximize the overall value of orders given the computed transport capacity. With the final set of accepted requests, the routing solution is updated to minimize costs of delivery. The presented solution approach combines well-known methods from revenue management and time-dependent vehicle routing. In a computational study for a German metropolitan area, the potential and the limits of value-based demand fulfillment as well as its sensitivity regarding forecast accuracy and demand composition are investigated.

Item Type:
Journal Article
Journal or Publication Title:
Business and Information Systems Engineering
Subjects:
ID Code:
87914
Deposited By:
Deposited On:
06 Oct 2017 19:34
Refereed?:
Yes
Published?:
Published
Last Modified:
29 Jul 2020 03:25