by Niels Agatz, Leo Kroon, Remy Spliet and Albert Wagelmans, Erasmus University Rotterdam

The continuous growth of online sales together with the current inefficiency of delivery services puts a lot of pressure on urban areas in terms of congestion, emissions and pollution. Researchers at Erasmus University Rotterdam are developing decision support tools to facilitate efficient delivery services for products purchased online.

Online retail sales are continuing to grow at a fast pace, even in times of global economic downturn. Online sales represent the only growth sector in the declining retail market. However, despite the potential of the internet as a sales channel, online retailers face many logistical challenges in fulfilling online demand. Internet order fulfillment, also called e-fulfillment, is generally considered the most challenging and critical part of the operations of companies selling physical goods online. Handling small individual orders and shipping them to customers’ homes in a timely and cost-efficient manner has proven difficult. This is particularly the case for the “last-mile” delivery, i.e., the last leg of the e-fulfillment supply chain in which the delivery is made to the customer. Owing to the large number of small individual orders, the last-mile often covers many stops in urban areas. Consequently, the last-mile leg of the delivery is disproportionately expensive.

The efficiency of the last-mile not only impacts the profitability of online retailing but also affects environmental and social performance criteria such as emissions and traffic congestion. For instance, vehicle-miles are directly related to emissions and the required number of vehicles for delivery has an impact on congestion.
The last-mile logistics project started in 2015. The primary goal of the project is to develop decision support tools to facilitate innovative operating strategies and to analyze the design of retail networks including an online channel that provides the most benefits in terms of various sustainability criteria. The research is carried out at the Erasmus University Rotterdam and is funded by the Dutch research funding body TKI-Logistiek, NWO, the largest Dutch online supermarket AH.nl and the logistics consultancy company ORTEC. The ambition is to have prototype decision support tools available for the industry by 2019. The current research focusses on two themes: optimizing delivery operations and the design of a multi-channel retail network.

The logistical challenges in delivery operations are especially apparent when the customer has to be home to receive the goods [1]. To minimize the risk of not finding a customer at home for delivery, and thus creating unnecessary vehicle movements, the retailer and the customer may agree on a delivery time window [2]. The design of such a time window menu involves decisions on the length and the number of the offered time windows and on the associated delivery fees. Moreover, the time window selected by each customer directly affects the delivery routes, and hence the transportation costs, emissions and additional strain on congestion. Our project develops different mathematical model formulations and subsequently focusses on the design of algorithms to optimize the time windows on offer. These algorithms can be used as decision support tools for online retailers but also as evaluation tools to assess the impact of different operating strategies on various sustainability criteria.

The second theme focusses on the support of strategic design decisions associated with multi-channel retailing. One example of such a decision is where to place pick-up point locations that allow customers to pick-up goods ordered online at a convenient time and place. This decision needs to take into account both customer preferences and operational costs. Another example relates to the consolidation of different transportation flows in a retail network that operates both online and offline channels, see also [3]. To support these strategic design decisions, we are also formulating mathematical models and developing optimization approaches. Note that decisions on the network design have an impact on the delivery operations and vice versa. This connects the two themes in the project.

Overall, our project aims to improve the efficiency and sustainability of the last-mile of online retailing. We believe this will become increasingly relevant given the growth of online sales and the increasing logistics challenges in urban areas.

Link:
http://www.erim.eur.nl/Last-Mile

References:
[1] A.M. Campbell, M.W.P. Savelsbergh: “Decision support for consumer direct grocery initiatives”, Transportation Science 39(3): 313-327, 2005.
[2] N.A.H Agatz, et al.: “Time Slot Management in Attended Home Delivery”, Transportation Science 45(3): 435-449, 2011.
[3] N.A.H Agatz, et al.: “E-fulfillment and multi-channel distribution - A review”, European Journal of Operational Research 187(2): 339-356, 2008.

Please contact:
Niels Agatz , Leo Kroon, Albert Wagelmans, Remy Spliet
Erasmus University Rotterdam, The Netherlands
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