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Pricing and Collaboration in Last Mile Delivery Services

Author

Listed:
  • 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)

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.

Suggested Citation

  • Seung Yoon Ko & Sung Won Cho & Chulung Lee, 2018. "Pricing and Collaboration in Last Mile Delivery Services," Sustainability, MDPI, vol. 10(12), pages 1-20, December.
    • Handle: RePEc:gam:jsusta:v:10:y:2018:i:12:p:4560-:d:187404
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    References listed on IDEAS

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    Cited by:

    1. Seung Yoon Ko & Ratna Permata Sari & Muzaffar Makhmudov & Chang Seong Ko, 2020. "Collaboration Model for Service Clustering in Last-Mile Delivery," Sustainability, MDPI, vol. 12(14), pages 1-18, July.
    2. Maria Richert & Marek Dudek, 2023. "Risk Mapping: Ranking and Analysis of Selected, Key Risk in Supply Chains," JRFM, MDPI, vol. 16(2), pages 1-30, January.
    3. John Olsson & Daniel Hellström & Henrik Pålsson, 2019. "Framework of Last Mile Logistics Research: A Systematic Review of the Literature," Sustainability, MDPI, vol. 11(24), pages 1-25, December.
    4. Patrick Klein & Bastian Popp, 2022. "Last-Mile Delivery Methods in E-Commerce: Does Perceived Sustainability Matter for Consumer Acceptance and Usage?," Sustainability, MDPI, vol. 14(24), pages 1-27, December.
    5. Csilla Bartucz & László Buics & Edit Süle, 2023. "Lack of Collaboration on the CEP Market and the Underlying Reasons—A Systematic Literature Review," Sustainability, MDPI, vol. 15(13), pages 1-22, June.

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