Pricing and Logistics Decisions for a Private‐Sector Provider in the Cash Supply Chain

Emerging technologies such as drone delivery services enable retailers to cost‐effectively offer unprecedented delivery speed and adaptable delivery lead times using dedicated aerial vehicles for individual orders. A natural and important question arises: What is the impact of a drone delivery system (DDS) on a retailer’s extant logistics parameters, for example, the number of customer‐facing delivery centers (last‐mile warehouses) it uses and delivery lead times it offers? On the one hand, the ability to reach customers faster than through traditional means argues for more centralization of delivery services. On the other hand, more decentralization can allow the retailer to offer hitherto unheard‐of delivery lead times and thereby spur demand. We show that, as drone technology matures and becomes more cost‐effective, delivery networks will become increasingly decentralized while delivering products at faster speeds. While perfect delivery customization—under which each demand location is offered a customized delivery guarantee—is theoretically feasible under a DDS, it may not be practical to implement such a finely differentiated delivery strategy. Instead, we show that retailers can recover a significant portion of the profit under this ideal scenario by offering limited delivery‐time customization, that is, partitioning the market into a few delivery “zones” and offering the best feasible delivery guarantee for each zone. In physically congested metropolitan markets, where retailers may be forced to operate with only a few delivery centers, it may be optimal to operate a DDS by offering delivery guarantees that are inferior to the best possible in order to throttle unprofitable demand. In such markets, the effectiveness of limited delivery‐time customization increases as the extent of physical congestion increases.

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“…(), and Mehrotra et al. (). The unique features of drone delivery and the associated network will likely lead to novel variants of this problem.…”

Section: Discussionmentioning

confidence: 99%

Retail Deliveries by Drones: How Will Logistics Networks Change?

Perera

Dawande

Janakiraman

et al. 2020

Production and Operations Management

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“…Later, Mehrotra et al. (2012) address the problem of pricing the transportation and other services offered to DIs by a 3PLP. The banknote inventory management problem has also been studied in Zhu et al.…”

Section: Literature Reviewmentioning

confidence: 99%

A Framework for Analyzing the U.S. Coin Supply Chain

Huang

Zhu

Kumar

et al. 2020

Production and Operations Management

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W e study a coin supply chain problem in the context of improving efficiency. While most consumer products are distributed in one direction, coins are recirculated and reused through the economy. The Federal Reserve System (FRS), the central banking system of the United States, plays a crucial role in managing the U.S. coin supply chain (CSC). It spends a significant fraction of its annual budget on operating the U.S. CSC in order to provide banking services to depository institutions (DIs) and the public. The objective of this study is to provide a near-optimal or an optimal operating policy that minimizes the total cost of producing, supplying, and managing coin inventory in the U.S. CSC. The study demonstrates a modeling approach that not only can be applied for effectively and efficiently managing the coin supply in the United States, but also for managing similar coin supply chains around the world. The extensive tools and insights developed in this study may prove to be beneficial to the Federal Reserve's Cash Product Office (CPO) that manages the distribution of the nation's coin inventory. Managing demand uncertainty and streamlining its processes to be more adaptable to changes in demand are critical for the CPO to reduce supply chain costs. The robust optimization framework and the resulting insights presented in this study could potentially help the CPO to manage shifts in coin demand and achieve its cost reduction goals.

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“…Concurrently, the 3PLP needs to make several logistics decisions (e.g., the number of processing centers to maintain, their locations, and the assignment of commercial banks to each processing center) to provide this additional fit-sorting service. Mehrotra et al (2012) study an integrated model that maximizes a 3PLP's profit by jointly pricing fit-sorting and transportation services and by designing the supporting logistics network.…”

Section: Pricing and Logistics Decisions For A 3plp In The Us Banknotmentioning

confidence: 99%

“…Additionally, two-piece pricing outperforms mixed pricing when the fit-sorting margin is high, and mixed pricing performs better when the fit-sorting margin is low. Mehrotra et al (2012) provide several managerial insights for the 3PLPs. Fit-sorting and transportation are partial substitutes for one another.…”

Section: Pricing and Logistics Decisions For A 3plp In The Us Banknotmentioning

confidence: 99%

A Review of Operational Issues in Managing Physical Currency Supply Chains

Geismar

Sriskandarajah

Zhu

2017

Production and Operations Management

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Even though more and more transactions and payments are conducted electronically, physical currency (banknotes and coins) still plays an essential role in commerce and trade, and it is expected to maintain its dominance in the near future. Over the past decade, several studies have analyzed various currency supply chains across the world. This study provides an overview of this research. The structure of a general banknote supply chain is given before the discussion of the problems from three different perspectives: (i) the supply side, that is, the parties who are in charge of supplying currency in the supply chain; (ii) the demand side, that is, the parties who request the currency; and (iii) the secure third‐party logistics providers. We also provide a framework for analyzing the US coin supply chain and descriptions of the coin supply chains in other countries. Future research directions are proposed based on the research work carried out so far and for the field in general.

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Pricing and Logistics Decisions for a Private‐Sector Provider in the Cash Supply Chain

Cited by 7 publications

References 23 publications

Retail Deliveries by Drones: How Will Logistics Networks Change?

Retail Deliveries by Drones: How Will Logistics Networks Change?

A Framework for Analyzing the U.S. Coin Supply Chain

A Review of Operational Issues in Managing Physical Currency Supply Chains

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