Evaluating on-demand warehousing via dynamic facility location models

Kaan Unnu and Jennifer Pazour

IISE Transactions, 2022, vol. 54, issue 10, 988-1003

Abstract: On-demand warehousing platforms match companies with underutilized warehouse and distribution capabilities with customers who need extra space or distribution services. These new business models have unique advantages, in terms of reduced capacity and commitment granularity, but also have different cost structures compared with traditional ways of obtaining distribution capabilities. This research is the first quantitative analysis to consider distribution network strategies given the advent of on-demand warehousing. Our multi-period facility location model – a mixed-integer linear program – simultaneously determines location-allocation decisions of three distribution center types (self-distribution, 3PL/lease, on-demand). A simulation model operationally evaluates the impact of the planned distribution strategy when various uncertainties can occur. Computational experiments for a company receiving products produced internationally to fulfil a set of regional customer demands illustrate that the power of on-demand warehousing is in creating hybrid network designs that more efficiently use self-distribution facilities through improved capacity utilization. However, the business case for on-demand warehousing is shown to be influenced by several factors, namely on-demand capacity availability, responsiveness requirements, and demand patterns. This work supports a firm’s use of on-demand warehousing if it has tight response requirements, for example for same-day delivery; however, if a firm has relaxed response requirements, then on-demand warehousing is only recommended if capacity availability of planned on-demand services is high. We also analyze capacity flexibility options leased by third-party logistics companies for a premium price and draw attention to the importance of them offering more granular solutions to stay competitive in the market.

Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/10.1080/24725854.2021.2008066 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:uiiexx:v:54:y:2022:i:10:p:988-1003

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/uiie20

DOI: 10.1080/24725854.2021.2008066

Access Statistics for this article

IISE Transactions is currently edited by Jianjun Shi

More articles in IISE Transactions from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().