ANALYSIS OF SHIPMENT CONSOLIDATION IN THE LOGISTICS SUPPLY CHAIN

Abstract

Shipment Consolidation (SCL) is a logistics strategy that combines two or more orders or shipments so that a larger quantity can be dispatched on the same vehicle to the same market region. This dissertation aims to emphasize the importance and substantial cost saving opportunities that come with SCL in a logistics supply chain, by offering new models or by improving on the current body of literature. Our research revolves around "three main axes" in SCL: Single-Item Shipment Consolidation (SISCL), Multi-Item Shipment Consolidation (MISCL), and Pricing and Shipment Consolidation. We investigate those topics by employing various Operations Research concepts or techniques such as renewal theory, dynamic optimization, and simulation. In SISCL, we focus on analytical models, when the orders arrive randomly. First, we examine the conditions under which an SCL program enables positive savings. Then, in addition to the current SCL policies used in practice and studied in the literature, i.e. Quantity-Policy (Q-P), Time-Policy (T-P) and Hybrid Policy (H-P), we introduce a new one that we call the Controlled Dispatch Policy (CD-P). Moreover, we provide a cost-based comparison of those policies. We show that the Q-P yields the lowest cost per order amongst the others, yet with the highest randomness in dispatch times. On the other hand, we also show that, between the service-level dependent policies (i.e. the CD-P, H-P and T-P), H-P provides the lowest cost per order, while CD-P turns out to be more flexible and responsive to dispatch times, again with a lower cost than the T-P. In MISCL, we construct dispatch decision rules. We employ a myopic analysis, and show that it is optimal, when costs and the order-arrival processes are dependent on the type of items. In a dynamic setting, we apply the concept of time-varying probability to integrate the dispatching and load planning decisions. For the most common dispatch objectives such as cost per order, cost per unit time or cost per unit weight, we use simulation and observe that the variabilities in both cost and the optimal consolidation cycle are smaller for the objective of cost per unit weight. Finally on our third axis, we study the joint optimization of pricing and time-based SCL policy. We do this for a price- and time-sensitive logistics market, both for common carriage (transport by a public, for-hire trucking company) and private carriage (employing one's own fleet of trucks). The main motivation for introducing pricing in SCL decisions stems from the fact that transportation is a service, and naturally demand is affected by price. Suitable pricing decisions may influence the order-arrival rates, enabling extra savings. Those savings emanate from two sources: Scale economies (in private carriage) or discount economies (in common carriage) that come with SCL, and additional revenue generated by employing an appropriate pricing scheme. Throughout the dissertation, we offer numerical examples and as many managerial insights as possible. Suggestions for future research are offered.