When Are Deliveries Profitable?

Considering Order Value and Transport Capacity in Demand Fulfillment for Last-Mile Deliveries in Metropolitan Areas

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, e-commerce 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.

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Correspondence to Jan Fabian Ehmke.

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Accepted after three revisions by the editors of the special focus.

This article is also available in German in print and via http://www.wirtschaftsinformatik.de: Cleophas C, Ehmke JF (2014) Wann sind Lieferaufträge profitabel? Berücksichtigung des Auftragswertes und der Transportkapazität in der Tourenplanung für die „letzte Meile“ in Ballungsräumen. WIRTSCHAFTSINFORMATIK. doi: 10.1007/s11576-014-0412-8.

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Cleophas, C., Ehmke, J.F. When Are Deliveries Profitable?. Bus Inf Syst Eng 6, 153–163 (2014). https://doi.org/10.1007/s12599-014-0321-9

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Keywords

  • Demand fulfillment
  • Vehicle routing
  • Revenue management
  • Simulation
  • City logistics