Data-driven optimization for last-mile delivery

Abstract

AbstractThis paper considers how an online food delivery platform can improve last-mile delivery services’ performance using multi-source data. The delivery time is one critical but uncertain factor for online platforms that also regarded as the main challenges in order assignment and routing service. To tackle this challenge, we propose a data-driven optimization approach that combines machine learning techniques with capacitated vehicle routing optimization. Machine learning methods can provide more accurate predictions and have received increasing attention in the operations research field. However, different from the traditional predict-then-optimize paradigm, we use a new smart predict-then-optimize framework, whose prediction objective is constructed by decision error instead of prediction error when implementing machine learning. Using this type of prediction, we can obtain a more accurate decision in the following optimization step. Efficient mini-batching gradient and heuristic algorithms are designed to solve the joint order assignment and routing problem of last-mile delivery service. Besides, this paper considers the mutual effect between routing decision and delivery time, and provides the corresponding solution algorithm. In addition, this paper conducts a computational study and finds that the proposed method’s performance has an approximate 5% improvement compared with other methods.