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Optimal quoting of delivery time by a third party logistics provider: The impact of shipment consolidation and temporal pricing schemes

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  • Ülkü, M. Ali
  • Bookbinder, James H.

Abstract

Increased competition in business environments requires that firms provide not only quality but also timely service with minimal cost. Offering a delivery-time guarantee may increase the demand for a product or service, or allow the firm to charge a price premium. This paper investigates the effects of different pricing schemes for a Third Party Logistics (3PL) provider. The 3PL tenders a consolidated load to a carrier that line-hauls over a certain origin–destination lane. In a price- and time-sensitive logistics market, we derive the optimal quotations that should be made for price and delivery-time, with the objective of maximizing the profit rate of the 3PL provider. We propose four easy-to-use temporal pricing schemes, and derive the corresponding optimal length of shipment consolidation cycles and the prices. Depending on the logistics market parameters, we show that charging according to an order’s time of arrival is not necessarily the best pricing scheme. Various managerial insights and numerical examples with sensitivity analysis are provided.

Suggested Citation

  • Ülkü, M. Ali & Bookbinder, James H., 2012. "Optimal quoting of delivery time by a third party logistics provider: The impact of shipment consolidation and temporal pricing schemes," European Journal of Operational Research, Elsevier, vol. 221(1), pages 110-117.
  • Handle: RePEc:eee:ejores:v:221:y:2012:i:1:p:110-117
    DOI: 10.1016/j.ejor.2012.03.021
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    References listed on IDEAS

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    1. Gürler, Ülkü & Alp, Osman & Büyükkaramikli, Nasuh Çağdaş, 2014. "Coordinated inventory replenishment and outsourced transportation operations," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 70(C), pages 400-415.
    2. Chen, Jing & Dong, Ming & Xu, Lei, 2018. "A perishable product shipment consolidation model considering freshness-keeping effort," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 115(C), pages 56-86.
    3. Balakrishnan, VN & Mohamad Khan, Jamal Khan, 2018. "Influential Factors of Competitive Advantage Progression on SME Third-Party Logistics in Selangor Malaysia," MPRA Paper 89091, University Library of Munich, Germany.
    4. Satır, Benhür & Erenay, Fatih Safa & Bookbinder, James H., 2018. "Shipment consolidation with two demand classes: Rationing the dispatch capacity," European Journal of Operational Research, Elsevier, vol. 270(1), pages 171-184.
    5. Romero-Silva, Rodrigo & Mujica Mota, Miguel, 2022. "Trade-offs in the landside operations of air cargo hubs: Horizontal cooperation and shipment consolidation policies considering capacitated nodes," Journal of Air Transport Management, Elsevier, vol. 103(C).
    6. Kyunghoon Kang & Ki-sung Hong & Ki Hong Kim & Chulung Lee, 2017. "Shipment Consolidation Policy under Uncertainty of Customer Order for Sustainable Supply Chain Management," Sustainability, MDPI, vol. 9(9), pages 1-17, September.
    7. Jana Ralfs & Gudrun P. Kiesmüller, 2022. "Inventory management with advance demand information and flexible shipment consolidation," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 44(4), pages 1009-1044, December.
    8. Qiu, Xuan & Xu, Su Xiu & Xu, Gangyan, 2021. "Pricing and scheduling of barge hinterland transportation service for inbound containers," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 156(C).
    9. Baldi, Mauro Maria & Manerba, Daniele & Perboli, Guido & Tadei, Roberto, 2019. "A Generalized Bin Packing Problem for parcel delivery in last-mile logistics," European Journal of Operational Research, Elsevier, vol. 274(3), pages 990-999.
    10. Anchal Gupta & Rajesh K. Singh & P. K. Suri, 2018. "Sustainable Service Quality Management by Logistics Service Providers: An Indian Perspective," Global Business Review, International Management Institute, vol. 19(3_suppl), pages 130-150, June.
    11. Zhang, Yuankai & Sun, Lijun & Hu, Xiangpei & Zhao, Chen, 2019. "Order consolidation for the last-mile split delivery in online retailing," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 122(C), pages 309-327.
    12. E. Ursavas & Stuart X. Zhu, 2018. "Integrated Passenger and Freight Train Planning on Shared-Use Corridors," Service Science, INFORMS, vol. 52(6), pages 1376-1390, December.
    13. Berling, Peter & Eng-Larsson, Fredrik, 2016. "Pricing and timing of consolidated deliveries in the presence of an express alternative: Financial and environmental analysis," European Journal of Operational Research, Elsevier, vol. 250(2), pages 590-601.
    14. van Ooijen, Henny & Bertrand, J. Will M. & Buyukkaramikli, Nasuh C., 2019. "Coordinating failed goods collecting and repair capacity policies in the maintenance of commoditized capital goods," International Journal of Production Economics, Elsevier, vol. 208(C), pages 29-42.
    15. Andr'e Barreira da Silva Rocha & Matheus Oliveira Meirim & Lara Corr^ea Nogueira, 2021. "Trends in the E-commerce and in the Traditional Retail Sectors During the Covid-19 Pandemic: an Evolutionary Game Approach," Papers 2105.06833, arXiv.org.
    16. Sonntag, Danja R. & Schrotenboer, Albert H. & Kiesmüller, Gudrun P., 2023. "Stochastic inventory routing with time-based shipment consolidation," European Journal of Operational Research, Elsevier, vol. 306(3), pages 1186-1201.

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