IE 581: E-Business and SCM

Professor: Dr. Seunghan Lee

Project Report Submission

On
Title : A proposal on evaluation of an alternative Shipment method:
Logistic evaluation of Distribution Network to Provide Customized
delivery service

By
Prashant Pandey, Umasudhan Rajagopal, Hrishikesh Deshmukh
Department of Industrial and Systems Engineering,
The State University of New York at Buffalo
Introduction

● Planning the logistics of the product delivery is the most crucial part of the supply chain
operations. Most of the companies solve the logistic problems by developing optimized network
and vehicle routes in this network to develop cost effective delivery solutions. Generally, this
problem situation is formulated as a Travelling Salesman Problem. We will use optimization
models to satisfy the objective of minimizing the travelling costs and develop an optimal solution
in which traversing in that route will result in reduced travel costs
● The existing supply chain management methodologies and the challenges they bring with them
significantly limit the user experience of the customer downstream.​​One of such critical problems
that the e-commerce or any shipping enterprise faces is the lack of a system / tool that will
provide the customer the choice to postpone/prepone/specifically select the delivery time of the
goods according to his/her specific needs and demands.

Background​

● ​ABC, a major E-Commerce enterprise in the U.S, wants to add a new feature in it’s existing
system which will allow its customers to choose the delivery time of their product according to
their need. They must be able to choose a specific time window.​
● The need for this project came up in a latest survey that the company conducted. Here the
customers expressed their concerns regarding the issue of thefts that are probable if the package
is left at the doorstep for too long. They also expressed their interest when it came to inclusion of
a feature where they would be able to pay extra for a prioritized delivery if the customer wishes
so.
● ​This project will attempt to reevaluate the delivery cost from the distribution center to the delivery
location as per the newly made request and provide with a cost solution that is optimal to both the
consumer and the delivery agency.​This project aims to use the travelling salesman approach to
evaluate the existing shortest route and lowest cost and incorporate the customer’s need into the
function.​

Objective Of The Experiment​

1. Evaluate existing Travel route and cost of travel.​

2. Develop a methodology to incorporate customer demand specific time by binning and
prioritization of the customer specific delivery times.​
3. Evaluate the proposed methodology and provide sustainable and optimal solution.​

Importance Of the Project​

1. Giving the consumers more control over the delivery will improve the user experience and
customer satisfaction.​
2. Optimal & prioritized routes can lead to economic logistic operation which may lead to improved
monetary benefits for the organization.​
3. Wide Scale adoption of the proposed project has the potential of generating additional revenue
for the company.​
Proposed Project’s Ideal Operation​

Current Process flow and Assumptions

Assumptions: ​
1. Optimal route defined by company is based on the minimum total cost of the delivery incurred by the
company.​
2. Order size doesn't play any role in deciding the sequence of the delivery locations.​
3. Delivery route is fixed and cannot be changed.​

Proposed Process flow and Assumptions​

Assumptions: ​
​1. Optimal route defined by company is based on the minimum total cost of the delivery incurred by the
company.​
2. Order size doesn't play any role in deciding the sequence of the delivery locations.​
3. Delivery route is flexible and customer can request to change it whenever they want​

Data Overview:

The approach we have taken to solve this project of providing customized delivery service to our
customer is by creating a route which is close to our optimal route which gives preference to the
customer who has accepted to pay the extra cost. To solve this type of problem we need data which will
help us to calculate the running cost for delivering the product.So the required data was collected from the
Open source websites ,U.S.D.O.E, and google maps.

Data Required:

Location Data:
● For our model we used candidate locations from the city of buffalo.
● We took the coordinates for the locations and calculated the Manhattan distance between
the two nodes.
● The distance between the nodes was assumed to be symmetrical for this model.

Service cost, Mileage Data

● This cost is required in order to aid the customer to make a decision whether or not to choose
to go ahead with the notified cost.
● For this model, we assumed the average statistics of RamPro Master which is a commonly used
delivery vehicle here in the US.
 ● The cost to be paid to the driver was assumed to be constant throughout the journey i.e, the
wage did not change if the driver had to travel the un-optimised route and eventually travel more
than required.

Fuel Cost:
● The fuel cost was averaged for 10 gas stations across the city of Buffalo.
Fuel cost = Cv+Cm+Ct+Ct2+Cv2+Ckf+Csm+Csunoco+Cds+Cbm/10
= 2.95$

Approaches to data collection

The three data types we took was

1. Location data
2. Service cost and mileage
3. Cost of fuel
Location data:

For obtaining the location data we took the coordinates from the Google maps and used that coordinate
data in the National Hurricane Center Website to get the distances between them.

Service cost and mileage:

To get the running cost of a single vehicle we need to consider its cot of operation by collecting its fuel
consumption cost, service cost of the vehicle per day due to the wear and tear experienced by the moving
part.

We obtained the average repair cost of the dodge ram promaster vehicle as its the most sought vehicle
for last mile transportation by many logistic companies . We referred U.S Department of Energy Website
to get the average service cost of the vehicle

Location data
Selected Vehicle Data:​

Model : Dodge Ram Promaster​

Make: American
​Specifications: 2.4 L, 4 cyl, Automatic 9-spd​
EPA: 21mpg (Data From U.S.D.O.E)

TSP Formulation – Integer Programming

​ e chose Nearest neighbor and Clark and weight saving algorithm for our TSP analysis and
W
compared the results in multiple real world scenarios.​

Analysis:

Three real world situations were considered for evaluating and validating the concept.

Situation 1: No customer asking for a Specific time delivery​

Vehicle travel Route : ECS - Clark hall - Niagara fall Blvd. - Walmart - Amherst - bell hall - Tonawanda -
ECS ​
Total travel distance : 18.125 miles​
Total travel cost : $5.69​

Situation 2: Delivery vehicle is at Clark hall(2nd stop) and customer at Walmart is asking for
specific time delivery​

​ ecision analysis:​
D
Step 1: Customer request company to deliver the parcel at a specific time which he/she wants​
Step 2: Company calculate the cost of entire delivery trip based on this new next location and the
additional charges are sent to customer for confirmation/payment.​
Step 3: If customer accepts the additional charge for the quick delivery service, the vehicle will follow the
new optimal route generated by the system real time.​
Step 4: If customer rejects the extra charge, vehicle will follow the predefined route.​

Vehicle travel Route: ​ECS - Clark hall - Walmart - Amherst - bell hall - Niagara fall BLVD - Tonawanda -
ECS warehouse​
Total travel distance :​20.625 miles​
Total travel cost : $6.04​
Additional cost charged to customer at Walmart: $0.34 ​
Situation 3: Delivery vehicle is at Clark hall(2nd stop) and Customers at Walmart and Amherst are
requesting for specific time delivery​

​ ecision analysis:​
D
Step 1: Multiple Customers( two in this case ) request company to deliver the parcel at a specific time
which he/she wants​
Step 2: Company calculates the cost of the entire delivery trip based on these new next locations for both
customers and the additional charges are sent to the customer with the lowest extra charge for
confirmation/payment. If he/she fails to confirm, the notification will be sent to next customer for
confirmation.​
Step 3: Whichever customer accepts the additional charge for the quick delivery service, the vehicle will
follow the new optimal route generated by the system real time.​
Step 4: If customers rejects the extra charge, vehicle will follow the predefined route.​

​ ehicle travel Route if visiting Walmart first : ​ECS - Clark hall - Walmart - Amherst - bell hall - Niagara
V
fall BLVD - Tonawanda - ECS warehouse​
Total travel distance 20.625 ​miles​
Total travel cost : ​
Additional cost charged to customer at Walmart: $0.34 ​

​ ehicle travel Route if visiting Amherst first : ECS - Clark hall - Amherst - Walmart - bell hall - Niagara
V
fall BLVD - Tonawanda - ECS warehouse​
Total travel distance : 21.625 miles​
Total travel cost : $6.13​
Additional cost charged to customer at Amherst: $0.44 ​

Solution validation:​

● Our main solution of interest is the additional running cost incurred by our company when we
operate the vehicle in a route other than the optima route favor the customer delivery.​
● We are considering two heuristics for solving the TSP formulated problem Nearest Neighbor
Algorithm and Clark and Wright Savings Algorithm .​
 ● We are only considering the network of demand nodes selected arbitrarily for giving control
preference of delivery to customers. ​
● Comparing the Two algorithms for the additional costs incurred by the customer if we operate in a
route other than the optimal route we get the following results.

● On referring to the tables above we see that the C-W savings algorithm produces the minimum
additional costs.​
● So we are going to implement the optimal route and route which favors the customer delivery
obtained from this heuristic.​
● The solution is about creating the value for the customer by delivering the goods to his/her
preference.​
● So it will improve the goodwill of the company attracting potential customers and profits for the
future.​

Conclusion:​ ​

1. We will implement the optimal route generated by the CW savings algorithm for the given delivery
nodes.​
2. The preferred route which will cater to a customer will be selected after the customer has
triggered the request and agrees to pay the calculated extra costs incurred. ​
3. The key contributions we make via this problem is that we give the control of time of delivery to
our customer after the part has left the distribution center.​

Limitations :​

1. We have validated the concept for only 7 locations and have tried to come up with only 3 possible
situations that could exist. ​
2. Only 2 algorithms were compared based on only distance between locations and trip cost. Other
factors like lot size per order, driver efficiency, urgency rating to the customers, multiple criteria
decision making for multiple customer in real world etc. are not considered in the analysis.​
3. We have only considered trip cost as a parameter for charging extra cost to the customer based
on subtracting the cost incurred in de-tour from the optimal cost of the route.​

​Future Work:​

1. Developing a flexible model using R programming for real time decision making about which
customer to choose and charge extra if they request for larger number of locations similar to what
an e commerce company experience.​
2. Adding factors like ‘loss distribution function’ to divide the extra cost incurred in de-tour to all the
locations downstream the supply chain who asks for the quick time slot delivery. Location towards
 the upstream of supply chain will be charged more than the one towards the downstream of
supply chain.​
3. Adding more heuristics methods for comparing and optimizing model results.​