Improving supply chain performance, order picking and service network design

Abstract

Over the last decades, technological advances and economic development have drastically changed numerous facets of our society. Higher standards of living have not only led to increased demand for goods, but also to a shift in preferences in the customers’ decision-making process. Convenience has become a key factor driving customers’ purchase decisions. E-commerce is thriving and home delivery has evolved to a must for a large group of customers, in order to benefit from faster or customizable delivery options. To stay competitive in this environment, businesses have to adapt their strategies to these changes in consumer behavior. Courier service companies, such as Amazon, Walmart, Ebay Gati, and Blue Dart have recognized customer thirst for convenience and seized this opportunity, offering a wide rangeofon-demandservices. Thesecourierscollect historic data on the deliveries that were requested by repeat customers, as well as one-time customers, and they can utilize these data to make a reasonable forecast for future demands. Since the transportation of goods is not a value adding process and transportation makes up a significant part of the operational costs, it should come to no surprise that efficient route planning lies at the core of their functioning. Couriers try to minimize their total costs. Oneofthemostefficient ways to reduce the total costs is by incorporating express services into their route planning which allows for cutting costs by outsourcing (if they can not do it themselves) inconvenient requests, and overdemand. In today’s international context, the planning and coordination of all necessary logistics operations within a supply network is a tedious task. As supply chain partners often established strong dependencies on each other — withtheaimtoimproveoverall efficiency of the network —, any delay or disruption in the transport flows between these partners will create a significant impact on the underlying operations [4, 52, 37]. 5Chapter 1. Introduction To plan and execute all required logistical operations within the supply chain, companies rely on third party logistics service providers (3PLs). These 3PLs manage the flow of goods between the different supply chain entities byeither dispatching their own vehicles or by subcontracting logistics service providers to executetherequiredtransportation requests [140, 118, 94]. A 3PL is responsible for coordinating all material flows that belong to the supply network. Thenetworkconsistsofmultiplehubs,whicheithertaketheformof transshipment points within the supply network or represent a local supply node uniting multiple suppliers within a certain region. The flow density between each pair of hubs varies significantly over time (some connections are seldomused, others havehighvolumeseveryday)andisuncertain(exact volumes are only known last-minute). As the 3PL does not have its own fleet of trucks, it relies on — often local — subcontractors (carriers) to execute the transports. Wedistinguish two types of agreements between the 3PLandits subcontractors. First, there is a long-term agreement to establish a periodic, fixed capacity on some of the network connections. For example, a truck is chartered every Monday and Thursday on a predefined link. As these long-term commitmentsarevaluable to the carriers, competitive prices can be negotiated for the service. However, setting up this collaboration comes with a cost mainly related to Loss of control, sharing resources, integration of information and technology, trust, or willingness to change, etc. On top of that, sufficient flow should be guaranteed as the payment is always for the full truckload (i.e., independent from the actual load). Second, the 3PL can book an ad-hoc express delivery on the spot market. This service is more flexible and its cost depends on the volume and trajectory of the actual load.