Pricing and Collaboration in Last Mile Delivery Services

Abstract

Recently, last mile delivery has emerged as an essential process that greatly affects the opportunity of obtaining delivery service market share due to the rapid increase in the business-to-consumer (B2C) service market. Express delivery companies are investing to expand the capacity of hub terminals to handle increasing delivery volume. As for securing massive delivery quantity by investment, companies must examine the profitability between increasing delivery quantity and price. This study proposes two strategies for a company’s decision making regarding the adjustment of market density and price by developing a pricing and collaboration model based on the delivery time of the last mile process. A last mile delivery time function of market density is first derived from genetic algorithm (GA)-based simulation results of traveling salesman problem regarding the market density. The pricing model develops a procedure to determine the optimal price, maximizing the profit based on last mile delivery time function. In addition, a collaboration model, where a multi-objective integer programming problem is developed, is proposed to sustain long-term survival for small and medium-sized companies. In this paper, sensitivity analysis demonstrates the effect of delivery environment on the optimal price and profit. Also, a numerical example presents four different scenarios of the collaboration model to determine the applicability and efficiency of the model. These two proposed models present managerial insights for express delivery companies.

Framework of Last Mile Logistics Research: A Systematic Review of the Literature

“…This methodology refers to studies conducted with different kinds of modeling, often based on empirical and quantitative data as well as various simulations. These studies often use heuristics [114], genetic algorithms [167], linear programming [117], integer programming and regression [100], costs modeling [140], life cycle assessment [14], carbon audit models [32], and consolidation modeling [107]. Case studies and interviews are the second largest group of methodologies (42 articles); the group contains different types of case studies, focus groups, interview studies, and field experiments.…”

“…Environmental performance Carbon emissions [14,153,155] and externality costs [5] 4 Economic performance pricing [167]; cost-effectiveness [166], postharvest loss [165] 3…”

Cost and Performance Optimisation in the Technological Phase of Parcel Delivery – A Literature Review

“…A majority of studies related to the organisations dealing with parcel delivery are aimed at cost reduction through various vehicle route optimisations or at introducing contemporary technologies and innovations as well as cost reduction by means of various network distances, etc. This claim has been confirmed by the authors who did research [4] on the price and collaboration in the last-mile delivery.…”

“…Postal organisations try to optimise their costs in different ways when it comes to the delivery phase, the proportion of which is 53% [3] in the overall operational costs. The authors [4] provide an illustration of the rise in volume on the Korean market in terms of express delivery and a proportional decrease in prices per item delivered. In the period of 12 years, the number of parcels increased from 52 million to 2 billion and 47 million.…”

“…Such trends in the volume increase and the decrease in prices have direct effect on the courier services and their costs. Owing to the increase in the delivery of parcels on the express delivery market and the proportional decrease in the prices per transport item [4], the courier organisations are under an increasing pressure due to the costs causing an increase in the delivery items. The transport price is not increasing proportionally with the volume; the price per parcel in 2004 was 3.291$/per parcel, whereas in 2016, the price dropped to $/parcel [4], while the costs are increasing faster than the profits causing a decline in the profitability of the organisation.…”