Planning and approximation models for delivery route based services with price-sensitive demands

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.ejor.2006.07.010 Byline: Joseph Geunes (a), Zuo-Jun Max Shen (b), Akin Emir (c) Keywords: Revenue management; Pricing; Vehicle routing problem Abstract: Classical vehicle routing problems typically do not consider the impact of delivery price on the demand for delivery services. Existing models seek the minimum sum of tour lengths in order to serve the demands of a given set of customers. This paper proposes approximation models to estimate the impacts of price on delivery services when demand for delivery service is price dependent. Such models can serve as useful tools in the planning phase for delivery service providers and can assist in understanding the economics of delivery services. These models seek to maximize profit from delivery service, where price determines demand for deliveries as well as the total revenue generated by satisfying demand. We consider a variant of the model in which each customer's delivery volume is price sensitive, as well as the case in which customer delivery volumes are fixed, but the total number of customers who select the delivery service provider is price sensitive. A third model variant allows the delivery service provider to select a subset of delivery requests at the offered price in order to maximize profit. Author Affiliation: (a) Department of Industrial and Systems Engineering, University of Florida, United States (b) Department of Industrial Engineering and Operations Research, University of California, 4141 Etcheverry Hall, Berkeley, CA 94720-1777, United States (c) Merck and Co., Inc., West Point, PA, United States Article History: Received 5 January 2006; Accepted 17 July 2006