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Allocating Costs in a Collaborative Transportation Procurement Network

H. Milton Stewart School of Industrial and Systems Engineering, Georgia Institute of Technology, Atlanta, Georgia 30332
H. Milton Stewart School of Industrial and Systems Engineering and The Logistics Institute, Georgia Institute of Technology, Atlanta, Georgia 30332
oozener{at}isye.gatech.edu
oergun{at}isye.gatech.edu

We study a logistics network in which shippers collaborate and bundle their shipment requests to negotiate better rates with a common carrier. In this setting, shippers can identify collaborative routes with decreased overall empty truck movements. After the optimal routes that minimize total cost of covering all the shippers' demands are determined, this cost is allocated among the shippers. Our goal is to devise cost-allocation mechanisms that ensure the sustainability of the collaboration. We first develop cost-allocation mechanisms with well-known properties from the cooperative game theory literature, such as budget balance, stability, and cross-monotonicity. Next, we define a set of new properties, such as a guaranteed discount from the standalone cost for each shipper, desirable in our setting, and propose several cost-allocation schemes that could lead to implementable solutions. We also perform a computational study on randomly generated and real-life data to derive insights on the performance of the developed allocation schemes.

Key Words: truckload shipping; collaborative logistics; cost allocation
History: Received: October 2006; revised: August 2007; accepted: October 2007.