A dynamic pricing strategy for a 3PL provider with heterogeneous customers

Abstract

a b s t r a c tWe study the pricing problem for a third-party-logistics (3PL) provider that provides ware-housing and transportation services. When customers arrive at the 3PL provider, they specify the delivery dates for their freight, and before the specified delivery dates, their freight is stocked in the 3PL provider's warehouse. We propose a dynamic pricing strategy (DPS) and develop a stochastic-nonlinearprogramming (SNLP) model which computes the optimal freight rates for different delivery dates incorporating the 3PL provider's current holding cost and available transportation capacity for each route. As customers are heterogeneous in their valuations and price sensitivities for delivery dates, and the distributions of the customers' delivery date preferences are unknown to the 3PL provider, we modify the standard multinomial logit (MNL) function to predict customer choices. Through a simulation experiment, we show that the proposed MNL function can be a good replacement for the mixed MNL function when the mixed MNL function is not applicable. Through simulation we also compare the proposed DPS with a static pricing strategy. We show that with our DPS both the 3PL provider and its customers are better off, and the 3PL provider has different investment incentives for increasing transportation capacity. Our results can be also applied in similar settings that feature holding costs, limited production capacity and delivery-date-sensitive customers.

Contemporary Tendencies in Third Party Logistics

“…Zhang et al (2015) proposed to use dynamics pricing strategy and develop a model which computes optimal freight rates taking into account 3PL provider's current holding costs and available transportation capacity. This model employs multinomial logit function based method to estimate customers' choices of delivery dates.…”

Advantages of 3PLs as healthcare supply chain orchestrators

“…Van Hoek (2000) suggests that 3PLs should consider expanding their services because expansion services can be seen as potential growth for its performance. Rajesh, Pugazhendhi, Ganesh, Muralidharan, and Sathiamoorthy (2011) showed that the 3PL firms are gradually starting to provide integrated transportation and other value-added services, including inventory control ( Yao et al, 2009 , Zhang et al, 2015 ), financial service ( Chen & Cai, 2011 ), reverse logistics service ( Suyabatmaz, Altekin, & Şahin, 2014 ). More recently, several studies have followed with interest in the role of the 3PL provider as a supply chain intermediary.…”

Mechanism Design of Unknown Bidding Preference and Discrete Cost Structure in Multi-Attribute Reverse Auctions

“…According to the existing literature, the frequently adopted methods include Lagrangian relaxation [35], heuristics [30] and linear price approximation [7]. In practice, iterative auction has been applied to many areas, such as production planning problem [19], inventory management [29], [42], scheduling [25] and capacity allocation [4], [31], [58]. However, most of these works assumed that the buyer exactly knows the bidder's bidding preferences and the cost function is continuous.…”