Dynamic Incentive Mechanism for Delivery Slot Management in E-Commerce Attended Home Delivery

Abstract

In attended home delivery, challenges arise in practice because of the short strict time windows, stochastic customer requests, and varying customers’ preferences for delivery slots. In this study, we focus on integrating dynamic time slot incentives and order delivery with the intention of reducing overall delivery cost and improving profitability. The proposed incentive mechanism is able to exploit the variability in the marginal fulfillment cost of an order and the customers’ preferences to influence the customers’ selection of delivery slots. We present an approximate dynamic programming approach to estimate the marginal fulfillment cost using the operational vehicle routing cost while accounting for future orders. We demonstrate that the proposed incentive mechanism can achieve a high level of savings (of up to 70%) with respect to the benchmark customer-free-choice scenario. It is also noted that the proposed mechanism effectively exploits higher order density and vehicle availability to achieve a higher level of savings.