Pricing and Collaboration in Last Mile Delivery Services

Seung Yoon Ko, Sung Won Cho and Chulung Lee
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Seung Yoon Ko: Department of Industrial Management Engineering, Korea University, 145 Anam-ro, Seongbuk-gu, Seoul 02841, Korea
Sung Won Cho: Department of Industrial Management Engineering, Korea University, 145 Anam-ro, Seongbuk-gu, Seoul 02841, Korea
Chulung Lee: School of Industrial Management Engineering, Korea University, 145 Anam-ro, Seongbuk-gu, Seoul 02841, Korea

Sustainability, 2018, vol. 10, issue 12, 1-20

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.

Keywords: express delivery service; last mile delivery; pricing; collaboration; market share (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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