Time-Dependent Shipment Options and Shipment Fees for E-Commerce Fulfillment Centers

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...

Full description

Saved in:
Bibliographic Details
Published in:arXiv.org 2023-07
Main Authors: Mohring, Uta, Drent, Melvin, Adan, Ivo, Willem van Jaarsveld
Format: Article
Language:English
Subjects:
Benchmarks
Electronic commerce
Fees & charges
Markov chains
Numerical analysis
Optimization
Time dependence
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary: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. Our time-dependent policy provides e-commerce companies with an easily implementable mechanism to 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.
ISSN:2331-8422