EURO 2024 Copenhagen
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4128. A Dynamic Compensation Strategy to Leverage Occasional Drivers in Last-Mile Delivery

Invited abstract in session TD-59: Pricing and applications, stream Pricing and Revenue Management.

Tuesday, 14:30-16:00
Room: S08 (building: 101)

Authors (first author is the speaker)

1. Rouven Schur
University of Duisburg-Essen
2. Kai Winheller
Universität Duisburg-Essen

Abstract

Amid the rapid growth of online retail, last-mile delivery faces significant challenges, including the cost-effective delivery of goods to all customers. Accordingly, the development and improvement of innovative approaches thrive in current research. Our work contributes to this stream by applying dynamic pricing techniques to effectively model the possible involvement of the crowd in fulfilling delivery tasks. The use of occasional drivers (ODs) as a viable, cost-effective alternative to traditional dedicated drivers (DDs) prompts the necessity to focus on the inherent challenge posed by the uncertainty of ODs’ arrival times and willingness to perform deliveries.
We introduce a dynamic programming framework that offers individualized pairs of delivery task and compensation to ODs as they arrive. This model, akin to a reversed form of dynamic pricing, accounts for ODs’ decision-making by treating their acceptance thresholds as a random variable. Thereby, our model addresses the dynamic and stochastic nature of OD availability and decision-making.
We analytically solve the stage-wise optimization problem, outline inherent challenges such as the curses of dimensionality, and present structural properties. Designed to cope with these challenges, our approximation methods aim to accurately determine avoided costs, which are a key factor in calculating optimal compensation.

Keywords

Status: accepted

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