Let customers deliver packages to reduce transport costs

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Delivering small packages to customers using big vans can be a costly affair, especially for online retailers operating on razor-thin margins. But researchers from Rotterdam School of Management, Erasmus University (RSM) have discovered how to cut variable delivery costs by up to 25 per cent – by asking customers to become the delivery network. Some customers are willing to take a small detour on their way home to deliver packages in exchange for a small fee. To make it work, the researchers developed an algorithm that matches the destinations of packages with other customers living in the neighbourhood or en route.

An increasing number of online retailers allow customers to collect online purchases from pick-up points or stores. Researcher Alp Arslan wondered if ‘customers that collect’ could make deliveries to other customers that live close by or en route. Using this principle of shared destinations would reduce the delivery distance driven. The flexibility of such a system would also help retailers to get packages to customers within a couple of hours of ordering, as is the trend now.

On your way home

Arslan suspected this model for ‘crowdsourced delivery’ might be especially effective in densely populated urban areas. To test their ideas, the researchers calculated what would happen if customers visiting the store told the retailer that they were willing to make a delivery, even at short notice.

The system the researchers developed determines what packages the customer could take with them and deliver, based on the customer’s route from the shop to their home. In return, the customer gets a small payment, for example € 1 per package. If there are no customers willing to deliver to a particular address, the researchers’ model allows for the cost of deploying a regular delivery vehicle, ensuring that customers always receive their orders on time. Although the researchers have not yet developed one, they say a smartphone app would be the ideal way for clients to communicate with the retailer.

More deliverers better

Niels Agatz, one of the researchers, says their simulations show the effectiveness of crowdsourced deliveries depends on several factors. First, results demonstrate the system’s economies of scale, he says. It works best when there are more deliverers available, which increases the chance of finding an appropriate deliverer for each package, and when there are more deliverers than packages.

Also, the more flexible deliverers are to accommodate an extra delivery, the better. The system becomes more efficient if they have half an hour to spare than if deliverers have only ten minutes for a delivery. Finally, the more stops a deliverer is willing to make, the better the system works, Agatz says.

Bicycle deliveries too

In the most optimistic scenario, deliverers would be willing to make up to four extra stops and there would be 150 deliverers for every 100 packages. Under these ideal circumstances the collective of crowdsourced deliverers would travel only 75 per cent as far as a traditional delivery van. That’s not only big a reduction in transport costs, the researchers say; the environmental benefits of crowdsourcing deliveries in urban areas would also be considerable, especially as the model could also work with bicycles, scooters or even using public transport.

The paper: Arslan, Alp and Agatz, Niels and Kroon, Leo G. and Zuidwijk, Rob A., Crowdsourced Delivery -- A Pickup and Delivery Problem with Ad-Hoc Drivers (February 2, 2016). ERIM Report Series Reference. 

Rotterdam School of Management, Erasmus University (RSM) is one of Europe’s leading business schools, and ranked among the top three for research. RSM provides ground-breaking research and education furthering excellence in all aspects of management and is based in the international port city of Rotterdam – a vital nexus of business, logistics and trade. RSM’s primary focus is on developing business leaders with international careers who carry their innovative mindset into a sustainable future thanks to a first-class range of bachelor, master, MBA, PhD and executive programmes. RSM also has offices in Chengdu, China, and Taipei, Taiwan. www.rsm.nl

For more information on RSM or on this release, please contact Ramses Singeling, Media Officer for RSM, on +31 10 408 2028, or by e-mail at singeling@rsm.nl.

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