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An approximate dynamic programming approach to attended home delivery management
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Yang, Xinan and Strauss, Arne (2017) An approximate dynamic programming approach to attended home delivery management. European Journal of Operational Research, 263 (3). pp. 935-945. doi:10.1016/j.ejor.2017.06.034 ISSN 0377-2217.
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Official URL: http://dx.doi.org/10.1016/j.ejor.2017.06.034
Abstract
We propose a new method of controlling demand through delivery time slot pricing in attended home delivery management with a focus on developing an approach suitable for industry-scale implementation. To this end, we exploit a relatively simple yet effective way of approximating delivery costs by decomposing the overall delivery problem into a collection of smaller, area-specific problems. These cost estimations serve as inputs into an approximate dynamic programming method that provides estimates of the opportunity cost associated with having a customer from a specific area book delivery in a specific time slot. These estimates depend on the area and on the delivery time slot under consideration.
Using real, large-scale industry data, we estimate a demand model including a multinomial logit model of customers’ delivery time slot choice, and show in simulation studies that we can improve profits by over two per cent in all tested instances relative to using a fixed-price policy commonly encountered in e-commerce. These improvements are achieved despite making strong assumptions in estimating delivery cost. These assumptions allow us to reduce computational run-time to a level suitable for real-time decision making on delivery time slot feasibility and pricing. Our approach provides quantitative insight into the importance of incorporating expected future order displacement costs into opportunity cost estimations alongside marginal delivery costs.
Item Type: | Journal Article | ||||||||
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Alternative Title: | Will be published in print on 16 December 2017. Please add volume, issue and page numbers: European Journal of Operational Research 263 (3,), pp. 935-945 | ||||||||
Subjects: | H Social Sciences > HD Industries. Land use. Labor | ||||||||
Divisions: | Faculty of Social Sciences > Warwick Business School > Operational Research & Management Sciences Faculty of Social Sciences > Warwick Business School |
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Library of Congress Subject Headings (LCSH): | Grocery trade, Supermarkets, Electronic commerce | ||||||||
Journal or Publication Title: | European Journal of Operational Research | ||||||||
Publisher: | Elsevier Science BV | ||||||||
ISSN: | 0377-2217 | ||||||||
Official Date: | 16 December 2017 | ||||||||
Dates: |
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Volume: | 263 | ||||||||
Number: | 3 | ||||||||
Page Range: | pp. 935-945 | ||||||||
DOI: | 10.1016/j.ejor.2017.06.034 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||
Date of first compliant deposit: | 19 June 2017 | ||||||||
Date of first compliant Open Access: | 16 June 2019 |
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