Work in progress
Uta Mohring, Melvin Drent, Ivo Adan, Willem van Jaarsveld
2023
2023
arXiv
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Cite
APA
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Mohring, U., Drent, M., Adan, I., & van Jaarsveld, W. (2023). Time-dependent shipment options and shipment fees for E-commerce fulfillment centers.
Chicago/Turabian
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Mohring, Uta, Melvin Drent, Ivo Adan, and Willem van Jaarsveld. “Time-Dependent Shipment Options and Shipment Fees for E-Commerce Fulfillment Centers” (2023).
MLA
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Mohring, Uta, et al. Time-Dependent Shipment Options and Shipment Fees for E-Commerce Fulfillment Centers. 2023.
BibTeX Click to copy
@article{uta2023a,
title = {Time-dependent shipment options and shipment fees for E-commerce fulfillment centers},
year = {2023},
author = {Mohring, Uta and Drent, Melvin and Adan, Ivo and van Jaarsveld, Willem}
}
Problem Definition: Fulfilling online orders faster becomes more and more important. To that end, e-commerce companies increasingly offer same-day shipment services. However, companies may overpromise their shipment services when the offered shipment options and corresponding fees are not aligned with the ability to fulfill these orders, leading to delayed orders and customer dissatisfaction. Indeed, fulfillment centers responsible for collecting and shipping online orders may not be able to hand over the orders to the parcel delivery company upon the agreed deadlines. Thus, the offered shipment options and corresponding fees should be adapted based on the time remaining for the fulfillment center to collect and ship these orders.
Methodology/Results: We build a parsimonious model of a stochastic e-commerce fulfillment center offering time-dependent shipment options and corresponding fees to utility-maximizing customers that arrive according to a Poisson process. For this time-dependent policy, we present an exact analysis based on the underlying periodic Markov chain as well as monotonicity results for the optimal time-dependent shipment fee structure. We then propose a simple time-dependent shipment policy with an attractive two-level fee structure, and study it alongside two benchmarks that are prevalent in practice. Both benchmarks rely on static, time-independent fees for the offered shipment options, but differ in whether they stop offering same-day shipment after a certain cutoff time. Our numerical analysis indicates that including such a cutoff point under static shipment fees increases profits significantly, and that moving to time-dependent shipment fees increases profits by another substantial amount.
Managerial Implications: E-commerce companies should better manage online demands for same-day or next-day shipment with the available capacity in the fulfillment centers responsible for collecting and shipping those orders. Our time-dependent policy provides these companies with an easily implementable mechanism to do so.
Methodology/Results: We build a parsimonious model of a stochastic e-commerce fulfillment center offering time-dependent shipment options and corresponding fees to utility-maximizing customers that arrive according to a Poisson process. For this time-dependent policy, we present an exact analysis based on the underlying periodic Markov chain as well as monotonicity results for the optimal time-dependent shipment fee structure. We then propose a simple time-dependent shipment policy with an attractive two-level fee structure, and study it alongside two benchmarks that are prevalent in practice. Both benchmarks rely on static, time-independent fees for the offered shipment options, but differ in whether they stop offering same-day shipment after a certain cutoff time. Our numerical analysis indicates that including such a cutoff point under static shipment fees increases profits significantly, and that moving to time-dependent shipment fees increases profits by another substantial amount.
Managerial Implications: E-commerce companies should better manage online demands for same-day or next-day shipment with the available capacity in the fulfillment centers responsible for collecting and shipping those orders. Our time-dependent policy provides these companies with an easily implementable mechanism to do so.
