IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v272y2019i2p549-564.html
   My bibliography  Save this article

Mileage bands in freight transportation

Author

Listed:
  • Nowak, Maciek
  • Hewitt, Mike
  • Bachour, Hussam

Abstract

Contract carriers in the trucking industry are known to offer shippers a per mile rate that decreases stepwise as the shipper’s route lengthens, with a mileage band designated for each rate. While the use of quantity-based pricing discounts in supply chains has been well studied, there has been no research on how shippers should route under such a pricing scheme or how carriers should set such bands. In this paper, we provide methods for both. Route construction is complicated by the fact that the per mile rate cannot be determined until after the route has been created. With this consideration, we develop a model of this problem and then an algorithm for solving it that assists the shipper in constructing the lowest cost route. It is beneficial for the shipper to extend the length of certain routes to incur a lower per mile cost, and we find that most of these routes can be constructed to equal any mileage required to receive the lower rate. As an extended route generates unnecessary expense and energy use for the carrier, theoretical and analytical insights provide guidelines for a carrier to use in developing better mileage bands. These guidelines assist a carrier in constructing bands that maximize profit and minimize the cost associated with a shipper extending a route.

Suggested Citation

  • Nowak, Maciek & Hewitt, Mike & Bachour, Hussam, 2019. "Mileage bands in freight transportation," European Journal of Operational Research, Elsevier, vol. 272(2), pages 549-564.
    • Handle: RePEc:eee:ejores:v:272:y:2019:i:2:p:549-564
    DOI: 10.1016/j.ejor.2018.07.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377221718306064
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ejor.2018.07.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Sophie D. Lapierre & Angel B. Ruiz & Patrick Soriano, 2004. "Designing Distribution Networks: Formulations and Solution Heuristic," Transportation Science, INFORMS, vol. 38(2), pages 174-187, May.
    2. Robert J. Dolan, 1987. "Quantity Discounts: Managerial Issues and Research Opportunities," Marketing Science, INFORMS, vol. 6(1), pages 1-22.
    3. Baumgartner, Kerstin & Fuetterer, André & Thonemann, Ulrich W., 2012. "Supply chain design considering economies of scale and transport frequencies," European Journal of Operational Research, Elsevier, vol. 218(3), pages 789-800.
    4. John G. Klincewicz, 1990. "Solving a Freight Transport Problem Using Facility Location Techniques," Operations Research, INFORMS, vol. 38(1), pages 99-109, February.
    5. Keely L. Croxton & Bernard Gendron & Thomas L. Magnanti, 2007. "Variable Disaggregation in Network Flow Problems with Piecewise Linear Costs," Operations Research, INFORMS, vol. 55(1), pages 146-157, February.
    6. Gerhard Reinelt, 1991. "TSPLIB—A Traveling Salesman Problem Library," INFORMS Journal on Computing, INFORMS, vol. 3(4), pages 376-384, November.
    7. Keely L. Croxton & Bernard Gendron & Thomas L. Magnanti, 2003. "A Comparison of Mixed-Integer Programming Models for Nonconvex Piecewise Linear Cost Minimization Problems," Management Science, INFORMS, vol. 49(9), pages 1268-1273, September.
    8. Holmberg, Kaj, 1994. "Solving the staircase cost facility location problem with decomposition and piecewise linearization," European Journal of Operational Research, Elsevier, vol. 75(1), pages 41-61, May.
    9. Forkenbrock, David J., 1999. "External costs of intercity truck freight transportation," Transportation Research Part A: Policy and Practice, Elsevier, vol. 33(7-8), pages 505-526.
    10. John Klincewicz, 2002. "Enumeration and Search Procedures for a Hub Location Problem with Economies of Scale," Annals of Operations Research, Springer, vol. 110(1), pages 107-122, February.
    11. Rajeev Kohli & Heungsoo Park, 1989. "A Cooperative Game Theory Model of Quantity Discounts," Management Science, INFORMS, vol. 35(6), pages 693-707, June.
    12. Z. Kevin Weng, 1995. "Channel Coordination and Quantity Discounts," Management Science, INFORMS, vol. 41(9), pages 1509-1522, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Song, Zhuzhu & Tang, Wansheng & Zhao, Ruiqing, 2020. "A simple game theoretical analysis for incentivizing multi-modal transportation in freight supply chains," European Journal of Operational Research, Elsevier, vol. 283(1), pages 152-165.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tue R. L. Christensen & Kim Allan Andersen & Andreas Klose, 2013. "Solving the Single-Sink, Fixed-Charge, Multiple-Choice Transportation Problem by Dynamic Programming," Transportation Science, INFORMS, vol. 47(3), pages 428-438, August.
    2. Salma Karray & Chirag Surti, 2016. "Channel coordination with quantity discounts and/or cooperative advertising," International Journal of Production Research, Taylor & Francis Journals, vol. 54(17), pages 5317-5335, September.
    3. Viswanathan, S. & Wang, Qinan, 2003. "Discount pricing decisions in distribution channels with price-sensitive demand," European Journal of Operational Research, Elsevier, vol. 149(3), pages 571-587, September.
    4. Qin, Yiyan & Tang, Huanwen & Guo, Chonghui, 2007. "Channel coordination and volume discounts with price-sensitive demand," International Journal of Production Economics, Elsevier, vol. 105(1), pages 43-53, January.
    5. Baumgartner, Kerstin & Fuetterer, André & Thonemann, Ulrich W., 2012. "Supply chain design considering economies of scale and transport frequencies," European Journal of Operational Research, Elsevier, vol. 218(3), pages 789-800.
    6. Youkyung Won, 2016. "Dominance Relationship Among the Retailer’s Strategies Under the Semi-Stackelberg Newsvendor Situation with Quantity Discounts," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 33(02), pages 1-20, April.
    7. Jose L. Andrade-Pineda & David Canca & Pedro L. Gonzalez-R, 2017. "On modelling non-linear quantity discounts in a supplier selection problem by mixed linear integer optimization," Annals of Operations Research, Springer, vol. 258(2), pages 301-346, November.
    8. Ram Kumar P N, 2013. "On Modeling The Step Fixed-Charge Transportation Problem," Working papers 134, Indian Institute of Management Kozhikode.
    9. Ya Ping Fang & Kaiwen Meng & Xiao Qi Yang, 2012. "Piecewise Linear Multicriteria Programs: The Continuous Case and Its Discontinuous Generalization," Operations Research, INFORMS, vol. 60(2), pages 398-409, April.
    10. Krishnan S. Anand & Ravi Aron, 2003. "Group Buying on the Web: A Comparison of Price-Discovery Mechanisms," Management Science, INFORMS, vol. 49(11), pages 1546-1562, November.
    11. Qinan Wang, 2002. "Determination of suppliers' optimal quantity discount schedules with heterogeneous buyers," Naval Research Logistics (NRL), John Wiley & Sons, vol. 49(1), pages 46-59, February.
    12. Yung-Ming Li & Jhih-Hua Jhang-Li & Ting-Kai Hwang & Ping-Wen Chen, 2012. "Analysis of pricing strategies for community-based group buying: The impact of competition and waiting cost," Information Systems Frontiers, Springer, vol. 14(3), pages 633-645, July.
    13. Christensen, Tue R.L. & Labbé, Martine, 2015. "A branch-cut-and-price algorithm for the piecewise linear transportation problem," European Journal of Operational Research, Elsevier, vol. 245(3), pages 645-655.
    14. S Salhi & A Al-Khedhairi, 2010. "Integrating heuristic information into exact methods: The case of the vertex p-centre problem," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 61(11), pages 1619-1631, November.
    15. Mutlu, Fatih & Çetinkaya, Sıla, 2020. "Supplier–carrier–buyer channels: Contractual pricing for a carrier serving a supplier–buyer partnership," International Journal of Production Economics, Elsevier, vol. 230(C).
    16. Rafael Blanquero & Emilio Carrizosa & Amaya Nogales-Gómez & Frank Plastria, 2014. "Single-facility huff location problems on networks," Annals of Operations Research, Springer, vol. 222(1), pages 175-195, November.
    17. Martins, Francisco Leonardo Bezerra & do Nascimento, José Cláudio, 2022. "Power law dynamics in genealogical graphs," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 596(C).
    18. Marjan Marzban & Qian-Ping Gu & Xiaohua Jia, 2016. "New analysis and computational study for the planar connected dominating set problem," Journal of Combinatorial Optimization, Springer, vol. 32(1), pages 198-225, July.
    19. Wei Zhang & Sriram Dasu & Reza Ahmadi, 2017. "Higher Prices for Larger Quantities? Nonmonotonic Price–Quantity Relations in B2B Markets," Management Science, INFORMS, vol. 63(7), pages 2108-2126, July.
    20. Ferrer, José M. & Martín-Campo, F. Javier & Ortuño, M. Teresa & Pedraza-Martínez, Alfonso J. & Tirado, Gregorio & Vitoriano, Begoña, 2018. "Multi-criteria optimization for last mile distribution of disaster relief aid: Test cases and applications," European Journal of Operational Research, Elsevier, vol. 269(2), pages 501-515.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:272:y:2019:i:2:p:549-564. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eor .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.