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Incentive Schemes for Attended Home Delivery Services

Department of Management Sciences, Tippie College of Business, University of Iowa, Iowa City, Iowa 52242-1994
Department of Industrial and Systems Engineering, Georgia Institute of Technology, Atlanta, Georgia 30332-0205
ann-campbell{at}uiowa.edu
martin.savelsbergh{at}isye.gatech.edu

Many companies with consumer direct service models, especially grocery delivery services, have found that home delivery poses an enormous logistical challenge because of the unpredictability of demand coupled with strict delivery windows and low profit margin products. In this paper, we examine the use of incentives to influence consumer behavior to reduce delivery costs. We propose optimization models for two forms of incentives and demonstrate their value and impact through simulation studies. We conclude with a presentation of insights resulting from our efforts.

Key Words: home delivery services; vehicle routing

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