Supply Chain Operations with Partial Demand Information and Customer Behavior

Boada-Collado, Pol

doi:https://doi.org/10.21985/n2-tgha-8w61

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Supply Chain Operations with Partial Demand Information and Customer Behavior

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This dissertation is motivated by the decision process of the supply chain team of a major furniture retailer that delivers its products at the customer's home. In retail supply chains for companies offering home delivery services, demand surges are observed at the store level, which translate to a high volume of orders that need to be delivered. Ordered products are distributed through middle mile lanes that connect hubs to spokes, from where the last-mile delivery routes depart. This dissertation studies novel strategies to reduce distribution costs by adapting middle and last mile operations to changes in the market place such as demand surges and consumers' buying trends. Chapters 2 and 3 of this dissertation focus on the middle mile transportation procurement of hub-to-spoke lanes when signing transportation capacity contracts with short temporal commitment. With new technological innovations, short temporal commitment contracts are found in dynamic environments like distribution, processing, and manufacturing; a trend likely to grow in the future. In contrast to classic procurement, where commitments are long, short temporal commitments lead to new dynamics in which demand visibility at the spoke level (resulting from in-store orders and deliverable windows) fundamentally changes contracting policies. By studying first a single dedicated hub-to-spoke lane, and then extending the results to a distribution network with multiple lanes, we show that dynamically incorporating demand visibility in procurement decisions allows companies to counteract demand uncertainty more effectively, better respond to seasonal demand surges, and use transportation capacity more efficiently. The settings studied in these chapters assume that delivery dates to customer homes are fixed. The last part of this dissertation, Chapter 4, introduces flexibility in delivery dates and focuses on scheduling policies for last mile distribution, i.e.; from spokes to the customer's home, to mitigate demand surges at the spokes level. When planning middle and last mile transportation capacity, understanding customers' sensibility to delivery lead time allows retailers to balance customer satisfaction and shipping costs. In attended home delivery, where customers need to be present at the time of delivery, as in the case of the furniture company, we study the importance of speed of delivery relative to other priorities when customers choose their preferred home delivery date. We find that speed of delivery is not only the factor that matters to customers, and it is of limited importance relative to customer availability and day of the week preferences. For the retailers, this is an opportunity to slightly extend delivery windows and more efficiently utilize middle and last mile distribution capacity. Taken together, the chapters in this dissertation show how companies can adapt operations to reduce distribution costs while meeting the expectations of their customers.

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