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JOURNAL OF BUSINESS LOGISTICS, Vol. 30, No.

1, 2009 185

THE LAST MILE CHALLENGE: EVALUATING THE EFFECTS OF CUSTOMER


DENSITY AND DELIVERY WINDOW PATTERNS

by

Kenneth K. Boyer
The Ohio State University

Andrea M. Prudhomme
The Ohio State University

and

Wenming Chung
University of Texas at El Paso

INTRODUCTION

The last 10 years have seen an explosion of consumer direct businesses such as grocery, office supply, package
and pharmaceutical delivery. Examples of businesses with consumer direct delivery include grocers such as
Freshdirect and Ocado (Delaney-Klinger, Boyer, and Frohlich 2003), office supply retailers such as Office Depot,
Staples and Office Max (all of which are in the top 10 Internet retailing business ranked by sales (Love and Peters
2006) and package delivery companies such as FedEx, UPS, Airborne and Deutsche Post. To illustrate, FedEx
ground delivers over $5 billion in sales per year in business-to-business packages, with FedEx Home Delivery
providing ground-based delivery services to residences. While FedEx does not break out the volume of home
delivery versus business delivery packages, it does note in recent financial results (March 27, 2007) that growth in
the home delivery segment is stronger than overall growth of 9% in ground delivery.

The operational challenges underlying consumer direct delivery are daunting. Numerous companies have failed
due to operational and logistical problems encountered with delivering orders directly to customers. The fulfillment
process for consumer direct orders can be broadly characterized as consisting of three stages (Campbell and
Savelsbergh 2005; Delaney-Klinger, Boyer, and Frohlich 2003): (1) order acceptance, (2) order selection and
fulfillment and (3) order delivery. Each of these stages is critical to providing excellent customer service at a cost
the customer is willing to pay.

The focus in this study is on the third stageorder delivery. The delivery of the final product to the customers
door is logistically challenging due to a number of factors and potentially very expensive (costs for a single delivery
of groceries run between $10 and $20 per order according to Boyer, Frohlich, and Hult 2004).

There has been substantial research on how to route and schedule vehicles from an algorithmic point of view
toward solving a particular problem. What is not clear is the shape of the efficiency curve and the interaction of two
key factors affecting routing efficiency: customer density and delivery window length. In other words, what is the
relative change in efficiency/cost as customer density increases or delivery windows are lengthened? This is a
problem of critical importance to customer direct businesses. The spectacular collapse of Webvan, the online grocer
that went bankrupt after reaching a market capitalization of over $5 billion while only producing sales of less than
$400 million, was partly tied to its promise of delivery within a pre-specified window of 30 minutes. While this was
great from a customer perspective, it proved to be a huge logistical challenge and cost (Boyer, Frohlich, and Hult
186 BOYER, PRUDHOMME, AND CHUNG

2004). A great deal of research has examined the need for collaboration between logistics and marketing
professionals (Ellinger, Keller, and Hansen 2006; Flint and Mentzer 2000), in this particular case the challenge is to
balance marketings desire for short delivery windows that are attractive to customers with logistics desire for
longer delivery windows which are more flexible and yield more efficient routes.

As an illustration of the benefits and challenges of increasing customer density, consider three groups of
customer delivery types. Of the 115.9 million residences in the United States, 30 % are in central cities, 46 % are in
suburban areas, and 34 % are outside of metropolitan areas (U.S. Government 2001). Approximately 30 % of U.S.
households have a non-working or at-home adult that may be available to accept a package in person (Laseter,
Torres, and Chung 2001), although that person would not necessarily be available all day, everyday. Logistics
providers face different challenges within each demographic category:

30 % of households are in high density central city areas which provide the highest level of efficiency
in terms of deliveries per mile and delivery route efficiency, but may result in a less safe environment
for packages left unattended when a recipient is unable to accept a package in person, or in some other
secured manner.

46 % of households are located in suburban areas that may be more secure for unattended packages,
but the increased unpredictability of route and delivery stops on a daily basis provide much less
opportunity for logistics providers to successfully optimize routes or the travel distance per package,
resulting in greater route inefficiencies.

34 % of households are in rural settings, which may be the most secure for unattended packages but
require the greatest travel distances between deliveries, have very inefficient routes, and are difficult to
economically justify.

The cost of delivery to these three population densities categories is summarized in Figure 1, as adapted from
multiple studies (Delfmann, Albers, and Gehring 2002; Laseter and Shapiro 2002; Punakivi and Saranen 2001;
Punakivi, Yrjola, and Holstrom 2001). This graph represents a very rough estimate of the relationship between
population density and delivery cost.

The current paper provides a simulation of analysis of two independent factors on delivery costs. The first
factor, customer density, is expected to negatively correlate with costs; i.e., delivery in areas with higher customer
density should be less expensive. Extant research on the exact shape of this relationship is not available. The second
factor, delivery window size, is expected to negatively correlate with costs; i.e., longer customer windows
correspond with lower delivery costs. In other words, offering a 30 minute delivery window where the delivery is
promised within a specific 30 minute period will be more expensive than offering a 2 hour delivery window. These
independent factors are utilized in a simulation using vehicle routing software, to obtain two dependent variables
stops per route (i.e., efficiency of the route = # customers/# trucks) and miles per route. Specifically, our simulation
examines seven different values for customer density and five different values for delivery window length, for a 7 x
5 = 35 factorial design.

RESEARCH ON VEHICLE ROUTING AND ELECTRONIC COMMERCE APPLICATIONS

Research on the vehicle routing problem (VRP) has been ongoing for approximately 50 years. The seminal
paper on the topic by Dantzig and Ramser (1959) provided a mathematical formulation and algorithmic solution
approach. Knight and Hofer (1968) provided the first examination of an important subset of the VRP with time
windows, in which customers received service within a pre-specified time period. Many researchers have focused on
solving the VRP problem and problems with similar characteristics with optimal solutions, such as the first
application of the branch-and-bound procedure for the traveling salesman problem (Little, Murty, Sweeney, and
Karel 1963). Unfortunately, the VRP problem with its many variants is exceedingly complex and NP Hard, thus
most research has focused on developing heuristic solutions (Braysy and Gendreau 2005).
JOURNAL OF BUSINESS LOGISTICS, Vol. 30, No. 1, 2009 187

FIGURE 1

COST OF LAST-MILE PACKAGE DELIVERY

The routing of vehicles for effective service delivery is an area of critical importance to logistics organizations
and researchers. Hundreds of papers have been written on various aspects of routing. Rather than an exhaustive
review of the literature, we provide a concise overview of recent work (within the last 10 years) that has appeared in
the logistics literature that relates relatively directly to some aspect of the home delivery problem for electronic
commerce. Following this general overview, we focus more specifically on our specific problemvehicle routing
with time windows.

Corporations usually must deal with multiple levels of challenges in their delivery systems. Kamoun and Hall
(1996) examine the design of express mail systems by formulating a model that includes the number and location of
relay or sorting locations, the number of feeder routes and the routing of both feeder and backbone vehicles. Their
simulation results provide insight into keys to efficient design of systems, but are not sufficiently accurate for
capturing the intricacies of vehicle routing. Work by Savelsbergh and Goetschalckx (1995) examined the use of
fixed route planning in order to minimize the cost of re-planning routes that is common in VRP. They found that in
some specialized cases fixed routes can be used instead of variable routes, yet this research is on very small
problems that are not representative of challenges faced in practice. Work by Schwardt and Dethloff (2005)
examined the use of self-organizing maps to solve location routing problems, but again the algorithm is tested on
relatively small problems with less than 200 customers.

Recent work has begun to examine various aspects of the inventory and delivery challenge for electronic
commerce. Rabinovich (2004) provides an examination of inventory liquidity for internet retailers. Hsu and Li
(2007) present an analytical model to examine the relationship between length of service cycles, customer demand
and company profit. The analysis occurs primarily at an aggregate level and does not look at methods for managing
inventory or delivery. Recent work on home delivery by De Koster (2002) examines the distribution structure such
188 BOYER, PRUDHOMME, AND CHUNG

as assortment of items and choice of warehouse type on home delivery of groceries, but provides little insight into
how to route vehicles. Other work on the home delivery of groceries provides an estimate of delivery costs as
ranging from a high of 61.4 % of annual turnover to a low of 14.0 % of annual turnover (Yrjola 2001). A close
reading of this paper reveals several assumptions that are unclear and details of the simulation approach that are not
present in the paperthus it is difficult to interpret the results with a high degree of reliability.

Vehicle Routing with Time Windows

In particular, the vehicle routing problem with time windows (VRPTW) is a challenging variant of the VRP
because of the added complexity of pre-scheduled delivery windows. The problem has been examined for optimal or
near-optimal solution techniques by scores of researchers. Braysy and Gendreau (2005) offer an extensive review of
various solution techniques. The VRPTW can be defined as follows. Let D be a set of one or more depots or
distribution centers from which customer orders are dispatched. Let N be a set of one or more customers, each with
a specific location and requested delivery time. Delivery time requests are defined in terms of delivery windows,
each with a start and end time. A delivery is considered to be on time if delivered between the start and end time. Let
C be a set of arcs connecting every pair of customers and depots. The travel time for each arc includes an estimate of
the time to travel the distance between each pair of customers/depots plus a service time at the customer or depot.
The travel time can be modeled as a function of distance, road type and traffic conditions. The objective of the
VRPTW is variously set as minimizing the number of routes or delivery vehicles needed or minimizing the total
travel distance or time.

Recent work on the VRP problem has examined a variety of variations on the basic problem. Giaglis, Minis,
Tatarakis, and Zeimpekis (2004) provide a good review of the relationship between and extant research on vehicle
routing and new technologies, including computers, mobile communications and GPS systems. Giaglis, Minis,
Tatarakis, and Zeimpekis (2004) provide a strong argument for the examination of VRP type problems and
technology concurrently. In other work, Chen, Hsueh, and Chang (2006) examine the classic VRPTW but modify it
to allow departure times to be modeled as decision variables. A heuristic for route construction is developed and
applied to 56 numerical problems. Similar research is provided by Du, Wang, and Lu (2007) which examines
several factors within a VRPTW setting and run simulations on 56 test problems. In both of these papers, the
heuristics are tested on the widely used set of problems developed by Solomon (1988). While these papers provide
insights into relative efficacy of heuristics and some guidance regarding parameter setting, a critical limitation with
this approach is that the set of customers is small (less than 100 customers) and not readily generalizable to practical
situations when companies have hundreds or thousands of customers.

While there has been extensive research on the VRPTW focusing on the most efficient and effective methods of
solving the problem, the main concern for businesses are somewhat different. Businesses offering consumer direct
services typically buy a software package that develops vehicle routes based on inputs provided. Leading vendors of
routing and scheduling software include companies such as Descartes Systems Group, Paragon Software Systems,
Prism, Garman Routing Systems and Cube Route. Each of these companies offers software to assist firms in
planning routing and scheduling. Software solutions can range from a few hundred dollars to several hundred
thousand dollars. Each package uses different algorithms to come up with effective routes. The goal in this paper is
not to evaluate or compare the efficacy of different packages, rather it is to examine the effects of increasing
customer density and different delivery window lengths. Therefore, we utilized a software package provided by
Descartes Systems Group called Fleetwise. This package takes as inputs information on customer and depot
locations, truck speed and capacity, order delivery windows, etc. and delivers a solution that provides customized
routes with complete turn-by-turn maps and directions as well as a timeline of delivery times. The parameters of our
simulation study will be examined in further detail.

CUSTOMER DENSITY AND WINDOW LENGTH EFFECTS

Companies that offer consumer direct delivery are very concerned with increasing customer density to improve
efficiencies, thus marketing often makes special efforts to selectively serve focused markets (Boyer, Frohlich, and
Hult 2004). Similarly, delivery window length is important to customers, who want shorter delivery windows, and
companies that aim for longer windows that increase efficiency. FedEx Home Delivery can be used to illustrate both
factorsthe company charges a small surcharge for home versus business deliveries due to the lower density of
JOURNAL OF BUSINESS LOGISTICS, Vol. 30, No. 1, 2009 189

deliveries to homes. Similarly, FedEx Home Delivery offers specific appointment times for deliveries, but at an
additional charge over the basic offering of delivery before a certain time of the daydue to the increased cost of
restricting delivery times through shorter windows.

Research on the VRP has long supported the intuitive relationship between customer density and route
efficiency (Solomon 1987). Similarly, there is an intuitive relationship between the length of the delivery window
and route efficiencyoffering longer windows allows the delivery company more flexibility and choice in route
planning (Campbell and Savelsbergh 2005; Punakivi and Saranen 2001; Solomon 1987). Logistics managers are
likely to prefer higher density and longer delivery windows in a quest to increase route efficiency and lower
operating cost, but this comes with a tradeoff. From a customer perspective, longer windows are less attractive due
to the need for the customer to be home to receive a delivery for a longer time period. Similarly, greater customer
density can be achieved by restricting deliveries to a certain day(s) of the week, yet this provides less choice for
customers. A key aspect of the relationship between density, window length and route efficiency is balancing the
goals of supplier (the retailer selling the goods) and the customer (Davis and Mentzer 2006).

Compounding the difficulty in efficient delivery of packages to customers is the push to schedule specific time
windows for delivery. Numerous companies such as Federal Express Home Delivery, UPS, home delivery grocers
and dairy services and office supply companies offer customers a pre-determined delivery window of 1-3 hours. The
general relationship is that shorter/tighter windows are more convenient for customers but more difficult for
providers to service. While the general relationship is intuitively clear, the exact shape of the efficiency curve is not
known. The only specific data we could find on this relationship was found in Punakivi and Saranen (2001). This
study found that costs for offering scheduled delivery with one or two hour windows were substantially higher (up
to 150 %) than offering unattended delivery (in our terminology, offering a 9 hour delivery window). While the
results in Punakivi and Saranen (2001) provide some insight into the relationship between delivery window length
and delivery efficiency, they are limited for several reasons including: no inclusion of different customer densities,
the simulations appear to be single runs (i.e., no replication with multiple data sets) and it is not entirely clear what
data parameters were used for the simulation.

EXPERIMENTAL DESIGN

Our experimental design consists of two parameters with multiple settings. These settings were derived from
discussions with seven different online grocers. The parameters approximate the range of operating conditions
experienced in these businesses, and are generalizable to other consumer direct businesses.

1. Customer Density: consists of seven levels: 500, 1000, 1500, 2000, 2500, 3000 or 4000 customers in the
service area. This corresponds to densities of 0.25 customers per square mile (500/2000 square miles in the
delivery area), 0.50, 0.75, 1.0, 1.25, 1.50 and 2.0 customers per square mile. We will refer to the number of
customers rather than customer density because these were the original settings in our simulation.
Customers were randomly selected from a list of 18,000 customers in a 6 county metropolitan region. This
metropolitan region is a city in the top 20 of U.S. population, with a population in the 6 counties of more
than 3 million people. The area of the metropolitan region is roughly 2000 square miles. The sample of
customers is representative of a random sample of a typical large urban city in the U.S. Note that increased
customer density for a consumer direct company can come from either serving an area with greater
population density or from achieving greater market penetration, i.e., getting orders from a higher
proportion of the region being served.

2. Window Length: consists of five levels: 1, 1.5, 2, 3 and 9 hour delivery windows. The delivery windows
were spread evenly across a nine hour day. This is done to provide a relatively even spread for demand. In
actual practice, this simplifying assumption would likely not be true as customers are likely to have highly
variable demand patterns (i.e., certain windows will be more popular than others). In practice, companies
try to control this through a combination of limiting availability for individual windows and differential
pricing to try to shape demand. Table 1 shows the windows used. The 9 hour delivery window is equivalent
to what has been termed unmanned delivery (Punakivi, Yrjola, and Holmstrom 2001) where there is
effectively no constraint on when a package or order is delivered. This delivery window is included as a
base caseit will have the best route efficiency. The remaining window lengths are chosen based on actual
190 BOYER, PRUDHOMME, AND CHUNG

company examples. For example, the online grocer Ocado in the U.K. offers 1 hour delivery windows in
order to offer a high level of customer service, while recognizing an increase in delivery costs. In contrast,
other online grocers offer windows of greater length (examples include Freshdirect, Tesco, Safeway, and
Simon Delivers).

The combination of settings for Customer Density and Window Length results in a 7 x 5 = 35 experiment
design. Each experiment is replicated between 5 and 10 times with randomly generated demand/customers. The
simulations are static in that there is no run lengthonce demand is generated for a combination of parameters (i.e.,
customer density and window length), there is a single route solution that is generated. Note, we started with 10
replications for the smallest number of customers, but changed to n=5 once determining that statistical power was
acceptable. This sample size provides sufficient statistical power and is similar to prior work in similar studies (Le
Blanc, Krieken, Krikke, and Fleuren 2006: Punakivi, Yrjola, and Holmstrom 2001; Sezen 2006; Smaros, Lehtonen,
Appelqvist, and Holmstrom 2003). Customer orders were generated from a list of 18,000 customers in a six country
metropolitan regioncustomer locations (without any names or identifying information) were obtained by
accessing the alumni database of the business college for one of the authors home institutions. To illustrate, for the
500 customer/order problem, 500 customer locations were randomly selected from the overall list of 18,000. Each
customer then had one order. This data set was labeled as C500A. This data set was then used to generate five
separate data files for each window length option; i.e., C500AW10 (1 hour windows), C500AW15 (1  hour
windows), C500AW20 (2 hour windows), C500AW30 (3 hour windows) and C500AW90 (9 hour windows).
Delivery windows were randomly assigned to customers within each filethis is done to simulate actual practice
where customers select windows according to their preference and the company can then control how these
customers are assigned to routes. The customers in each set of customer density files are the same (i.e., C500AW10
has the same customers as C500AW15, C500AW20, C500AW30 and C500AW90), with only the allocation of
delivery windows differing. Other than delivery windows, orders were not prioritized in any way. In other words,
every customer with a requested delivery between 9 AM and 11 AM received the same priority. This replication of
customers helps control for extraneous variance and increase the power of the ANOVA tests on our dependent
variables (Law and Kelton 2000).

The experimental design also includes several fixed factors. First, the time to unload a customer order for
delivery was set at 10 minutes. This value was determined based on discussions with four online grocers and
represents the midpoint of their actual average unloading time. Second, the simulation used one centralized
distribution center (DC). The DC for the simulations was selected in a location that was central to the delivery area
and close to major freeways. Third, there were no limits set on any type of capacitytruck capacity, DC capacity or
the number of trucks. Obviously this would not be true in actual practice, but our assumption was that growing
businesses would be required to maintain sufficient capacity to serve all customer orders and would make
appropriate expansion decisions at the proper time. Since our goal is to look at the relative efficiency for different
customer densities and delivery windows, these assumptions should not have a substantial impact on our outcomes.
Fourth, each route is available to start at 8:00 AM and must make its last delivery by 5 PM. Drivers are scheduled
for a 1 hour break during each route.

TABLE 1
DELIVERY WINDOWS USED IN SIMULATIONS

9 Hour 3 Hour 2 Hour 1  Hour 1 Hour


8:00 11:00 8:00 10:00 8:00 9:30 8:00 9:00
11:00 14:00 9:30 11:30 9:30 11:00 9:00 10:00
14:00 17:00 11:30 13:30 11:00 12:30 10:00 11:00
13:30 15:30 12:30 14:00 11:00 12:00
15:00 17:00 14:00 15:30 12:00 13:00
15:30 17:00 13:00 14:00
14:00 15:00
15:00 16:00
16:00 17:00
JOURNAL OF BUSINESS LOGISTICS, Vol. 30, No. 1, 2009 191

RESULTS

The results of the simulation are presented in Tables 2 and 3 and Figure 2. The problems were worked in order
of increasing difficulty of solution, starting with 500 customers and ending with 4000 customers. We initially
planned to run 10 replications of each experimental combination of customer density and delivery windows.
However, the Descartes Fleetwise software package as installed at the authors university required the use of a
network server with shared capacity. This resulted in lengthy computation times. Problems with 500 customers
required from 1 to 2 hours of computation time, while problems with 4000 customers required over 24 hours of
computation time. As a result, we carefully assessed the power of our research design and determined that five
replications of each experimental combination would suffice to provide statistical significance. It is important to
note that while solving VRPTW problems with several thousand customers is an amazingly complex process,
computer power is such that these types of problems can be solved within an hour or two if sufficient hardware
resources are dedicated. Companies that run software for routing purposes (such as FedEx, UPS, FreshDirect or any
number of 3PL companies) typically dedicate sufficient computer power to allow the problems to be solved in a
reasonable length of time.

Table 2 provides the mean stops per delivery route for each experimental combination of customer density and
delivery window length. The table shows both parameters are significant at the p < 0.01 level, as is the interaction
effect. A Scheffe post-hoc test indicates that all individual means are significantly different at p < 0.05, with two
exceptions. Table 3 provides the mean miles per delivery route for each experimental combination of customer
density and delivery window length. The table shows both parameters are significant at the p < 0.01 level, as is the
interaction effect. Figure 2 provides a graph of the drops per delivery route. Figure 3 provides the mean miles per
customer compared to Customer Density (Part A) and Delivery Window Length (Part B).

MANAGERIAL IMPLICATIONS

The results in Tables 2 and 3 confirm our a priori expectationsboth customer density and delivery window
length have a statistically significant and substantial effect on route efficiency, whether measured by stops per route
or by mean route length. We are more interested in interpreting the shape of the curves and examining how the data
can be used to shape managerial decision making. Consider the case of a new business such as online grocer
Freshdirect, based in New York City. This grocer was successful in growing customer orders to 3,300 per day in
their first year of business (Schonfeld 2004). While this increase is great from a sales perspective, it comes with
substantial operational and logistical challenges. In the first few months of operation, the delivery manager might
use the data in Table 2 to determine which length delivery window to offer. For example, the data in Table 2 show
an average of 15.45 stops per route for a 3 hour window and 13.66 stops per route for a 1.5 hour window, thus
offering customers a 1  hour window results in an increase of 13% in delivery costs. In contrast, offering the 3
hour window rather than no window (i.e., 9 hours) results in a 45% increase in delivery costs. This increase in costs
must be weighed against the potential increase in attractiveness to customers. Offering shorter windows has been
shown to be a powerful enticement to attracting customers (Boyer, Frohlich, and Hult 2004; Laseter, Torres, and
Chung 2001). Thus, the simulation results are useful in determining the cost of delivery for a given level of customer
density or sales.

Another way managers can use the data in Tables 2 and 3 is to determine when/if to offer shorter time windows
as customer density (sales) increase. For example, if a company offered 3 hour delivery windows in an area with
1000 customers, if sales increased so that there were 1500 customers in the same area, the company could offer 2
hour delivery windows for approximately the same cost (20.41 vs. 20.38 stops per route). As sales continued to
increase, the company could offer 1.5 hour windows for areas with 2000 customers (21.37 stops per route) and 1
hour windows when customer density reached 2500 customers (19.81 stops per route). This type of strategy is
common for companies offering consumer direct deliveries. For example, Peapod, the online grocer offering service
in Chicago, Boston, Washington DC and Milwaukee areas, offers windows of different lengths in regions with
different levels of demand. Areas with high demand are offered shorter 2 or 1  hour delivery windows, while areas
with low demand are offered either 3 hour or 9 hour windows. In areas where demand is very low, delivery may
only be offered on selected days of the week (Boyer, Hult, and Frohlich 2003).
192 BOYER, PRUDHOMME, AND CHUNG

TABLE 2

STOPS PER DELIVERY ROUTE: DELIVERY WINDOW VS. CUSTOMER DENSITY

Customers Delivery windows


(Customer
Density
Customers per Row
square mile) 1 hour 1.5 hours 2 hours 3 hours 9 hours statistics F
500 Mean 13.14 13.66 15.04 15.45 22.33 15.80 231.76*
Std.
(0.25)
Deviation 0.49 0.69 0.69 0.60 1.12 3.33
N 10 10 10 10 9 49
1000 Mean 16.25 18.19 19.09 20.41 28.11 20.41 54.65*
Std.
(0.50)
Deviation 0.55 0.40 0.49 0.29 0.91 4.20
N 5 5 5 5 5 25
1500 Mean 17.44 18.89 20.38 21.28 29.71 21.54 672.42*
Std.
(0.75)
Deviation 0.13 0.63 0.60 0.37 0.32 4.38
N 6 6 6 6 6 30
A
2000 Mean 18.87 21.37 22.13 23.11 30.88 23.27 70.76*
Std.
(1.0)
Deviation 0.28 0.31 0.28 0.64 0.70 4.16
N 5 5 5 5 5 25
2500 Mean 19.81 21.27 22.73 23.82 31.49 23.82 88.33*
Std.
(1.25)
Deviation 0.26 0.56 0.15 0.48 0.53 4.17
N 5 5 5 5 5 25
3000 Mean 20.58 21.97 23.41 24.00 31.78 24.35 318.89*
Std.
(1.50)
Deviation 0.41 0.46 0.40 0.27 0.18 3.99
N 5 5 5 5 5 25
4000 Mean 21.05 22.52 23.96 25.01 32.79 24.35 87.20*
Std.
(2.00)
Deviation 0.21 0.75 0.49 0.59 0.43 4.20
N 5 5 5 5 5 25
Column statistics Mean 17.53 18.94 20.23 21.07 28.86 Interaction Effect
Std.
Deviation 2.96 3.39 3.37 3.56 3.87 F = 4.33*
N 41 41 41 41 40
400.96 331.45 174.77
*
F 217.89* 279.35* * *

Notes:
* p < 0.01
A All individual mean values are significantly different based on a post-hoc Scheffe test at the p < 0.05 level
with the exception of the mean for the 2000 customer, 1 hour window group with respect to the 1500
customer and 2500 customer groups with 1 hour window.
JOURNAL OF BUSINESS LOGISTICS, Vol. 30, No. 1, 2009 193

TABLE 3

MILES PER DELIVERY ROUTE: DELIVERY WINDOW VS. CUSTOMER DENSITY

Customers Delivery windows


(Customer
Density
Customers per Row
square mile) 1 hour 1.5 hours 2 hours 3 hours 9 hours statistics F
500 Mean 87.65 87.09 89.85 86.19 79.20 86.14 7.83*
Std.
(0.25)
Deviation 4.22 4.07 4.47 3.77 5.36 5.50
N 10 10 10 10 9 49
1000 Mean 103.93 105.55 103.56 95.19 82.76 98.20 54.65*
Std.
(0.50)
Deviation 2.68 2.67 4.49 2.41 1.10 9.09
N 5 5 5 5 5 25
1500 Mean 92.39 90.18 89.39 85.31 72.38 85.93 123.78*
Std.
(0.75)
Deviation 0.89 2.32 2.57 1.16 1.15 7.45
N 6 6 6 6 6 30
2000 Mean 96.85 96.64 93.57 85.37 70.86 88.66 70.76*
Std.
(1.0)
Deviation 4.50 1.96 3.01 2.97 0.79 10.38
N 5 5 5 5 5 25
2500 Mean 95.94 93.29 90.64 84.10 68.05 86.40 88.33*
Std.
(1.25)
Deviation 3.03 2.67 3.83 1.79 1.03 10.48
N 5 5 5 5 5 25
3000 Mean 94.29 88.67 86.22 81.35 66.64 83.43 318.89*
Std.
(1.50)
Deviation 1.78 1.68 0.43 1.51 0.37 9.64
N 5 5 5 5 5 25
4000 Mean 95.10 91.93 91.41 81.16 63.56 84.63 87.2*
Std.
(2.00)
Deviation 1.99 4.18 3.77 3.41 0.61 12.10
N 5 5 5 5 5 25
Column statistics Mean 94.18 92.50 91.75 85.60 72.66 Interaction Effect
N 41 41 41 41 40
Std. F = 7.74*
Deviation 5.74 6.46 5.89 4.81 6.91
* * * *
F 16.29 23.03 11.96 14.38 35.51*
* p < 0.01
194 BOYER, PRUDHOMME, AND CHUNG

TABLE 4

QUADRATIC CURVES PREDICTING DROPS PER ROUTE

Window Length R2 Model


1 Hour 0.983* 11.1500+0.0053 C -7.236E-007C2
1.5 Hours 0.948* 11.3986+0.0066 C -9.857E-007 C2
2 Hours 0.975* 12.6995+0.0065 C -9.323E-007 C2
3 Hours 0.946* 13.4796+0.0066 C -9.4271E-007 C2
9 Hours 0.939* 20.1830+0.0076 C -1.1410E-006 C2

NOTE: all models are significant at p < 0.01

FIGURE 2

STOPS PER CUSTOMER ROUTE


Stops per Route

Customers in Delivery Area

The simulation data also provide a method for estimating the costs of delivering customer orders. Previous
research (Delaney-Klinger, Boyer, and Frohlich 2003) provided an estimate for cost of delivery (not including
picking the items in the order at the fulfillment center) of $10-20 per order, but this estimate was based on very
generalized data and imprecise estimates. The data in Tables 2 and 3 provides a much more empirically grounded
method of estimating costs. For example, assuming a company had 2000 customers in the delivery region and a 2
hour delivery window, Table 2 shows a route efficiency of 22.13 stops per route. By assuming certain cost
parameters, including labor cost per hour ($20), cost per mile to run the delivery van ($0.60) and depreciation cost
per year ($6,000), we can estimate a cost per delivery. These parameters yield a total cost of $11.21 per order (Labor
= 8 hours/shift * $20 per hour/22.13 stops per route from Table 2 = $7.23 per stop; Cost per mile = $0.60 per mile *
JOURNAL OF BUSINESS LOGISTICS, Vol. 30, No. 1, 2009 195

2000 customers/22.13 stops per route [from Table 2] * 93.57 miles per route [from Table 3]/2000 customers per
route = $2.54 per stop; Depreciation = $8,000 per year/250 days per year*22.13 stops per route = $1.45 per stop). Of
course, the specific estimate depends on the parameters/assumptions used to calculate costs, but the data in Table 2
and 3 provide a good starting point for straightforward calculations.

FIGURE 3

MILES PER CUSTOMER


A) Effects of Customer Density
6.00
5.63

5.05

5.00

4.18
3.97
3.78
4.00
3.56 3.52
Miles per Customerr

3.00

2.00

1.00

0.00
500 1000 1500 2000 2500 3000 4000
Customers in Delivery Area

Managers can utilize the data in Tables 2 and 3 to guide marketing decisions to increase routing efficiency. This
can be done by providing incentives to customers to group orders in tighter clusters, with the incentives being either
time-based (i.e., more frequent or shorter delivery windows on certain days) or financial. Consider the example of
two home grocery delivery companies provided in Boyer, Hult, and Frohlich (2003). Ocado, a grocer based outside
of London, had a large spike in orders on Fridays, with demand on Friday being roughly 1.67 times demand on
MondayThursday (see Figure 5 in Boyer, Hult, and Frohlich 2003). In contrast, Peapod had peak demand on
Monday and Tuesday with roughly 1.25 times the average demand on WednesdaySaturday. Boyer, Hult, and
Frohlich (2003) attribute this to greater efforts on the part of Peapod to encourage customers to shift demand to less
busy days of the week. The data on Ocado was drawn from its first year of operations, when the company was
primarily trying to increase demand without regard to maximizing delivery efficiency. After reaching a sufficient
scale, a company such as Ocado would do well to offer incentives. This could be in the form of limiting delivery
slots on the peak day (Friday) and offering more delivery slots on under-utilized days such as MondayThursday.
Alternatively, deliveries on under-utilized days might be a reduced pricesay $5.95 versus $7.95 for peak days.
Finally, the company might offer to allow customers to permanently reserve a specific time and day of the week. All
of these incentives are offered commonly in practice (Boyer, Frohlich, and Hult 2004); Table 2 allows managers to
estimate the value of improved route efficiency.
196 BOYER, PRUDHOMME, AND CHUNG

FIGURE 3 (cont.)
MILES PER CUSTOMER
B) Effects of Delivery Window Length
6.00

5.35

4.85
5.00

4.50

4.02
4.00
Miles per Customer

3.00

2.49

2.00

1.00

0.00
1 hour 1.5 hours 2 hours 3 hours No Window
Window Length

As shown earlier in the cost estimates, labor cost tends to dominate the travel cost per mile for consumer direct
deliveries, yet companies and customers are still concerned with the per mile efficiency. Previous research has
examined the cost of home delivery versus an estimated cost of customers driving to the store (Punakivi, Yrjola, and
Holmstrom 2001). As concern for the environment has grown over the past few years, politicians and activists have
suggested that home grocery delivery might offer a way to reduce travel distances. Punakivi and Saranen (2001) hint
that grouped deliveries may be more efficient from a travel distance per mile perspective than when consumers drive
to the store themselves, but do not provide sufficient detail to determine all of the assumptions that their estimate is
based on. Many environmental activists advocate reducing driving to superstores such as Walmart. One recent
estimate of driving distances for Walmart customers was that each shopping trip was an average of 2 miles longer
and that shopping related driving grew at a rate of 3 times driving for all other purposes. Walmarts customers
driving to the store account for 15.4 million metric tons of CO2, more than all of Walmarts domestic CO2 output
combined (Peralta, 2007).

In addition, politicians and activists have suggested that online ordering for home delivery may offer an
attractive alternative to customers in poor or underserved urban neighborhoods with limited access to top notch
supermarkets. A recent article estimated that over half a million people in Chicago live in a food desert with few
or no quality grocery stores (Briggs 2007). Customers in these food deserts must either make do with less choice,
more expensive food or must travel to far away neighborhoods to get better choices (Clarke, Hallsworth, Jackson,
and Kervenoael 2004; Wrigley, Warm, Margetts, and Lowe 2004). One report found that families in food deserts
averaged a 17 minute one-way trip to a grocery store (Mock 2003), which equates to an 8.5 mile one-way drive
assuming a 30 mph speed. Figure 3 offers a basis of comparisonby combining the data in Table 2 and Table 3
(dividing the average distance by the average stops per route) we are able to compute an average miles per customer
metric. Figure 3A shows the average miles per customer ranging from 5.63 for 500 customers to 3.52 for 4000
customers (merged across all window lengths). Figure 3B shows the average miles per customer ranging from 5.35
for one hour delivery windows to 2.49 for a 9 hour delivery window. In the best combination of customer density
(4000 customers) and delivery window length (9 hours) the average miles per customer is 1.94. This is substantially
JOURNAL OF BUSINESS LOGISTICS, Vol. 30, No. 1, 2009 197

lower than the average driving distance if customers shop themselves suggesting that online ordering of groceries
for home delivery provides a reasonable alternative in a food desert.

CONCLUSION AND SUGGESTIONS FOR FUTURE RESEARCH

This research has provided data on the effects of customer density and delivery window length on delivery
efficiency. In general, greater customer density in a given sales area and longer delivery windows facilitate greater
efficiency. The specific data provide a methodology for managers to estimate the advantages of making changes in
either parametereither by offering longer/shorter delivery windows or by offering incentives to try to shape the
demand curve and promote greater concentration of deliveries by day of the week and area. The data support the
relatively intuitive conclusion that efficiency increases with each parameter, but also provides some interesting
insights on the magnitude of the increase.

A close examination of the data in Figure 2 provides some interesting insights. Note that the curves provided in
Figure 2 are quadratic, with specific models shown in Table 4. All of the curves are significant at p < 0.01 and
provide a better fit than a simple linear regression. The data in figure 2 indicate that route efficiency increases as
customer density increases, but at a decreasing rate. All of the curves have a negative quadratic component
indicating that the increases in route efficiency are asymptotic. A review of the data in Figure 2 suggests that
relatively maximum efficiency is achieved between 3000 and 4000 customers. This corresponds to a customer
density of between 1.5 and 2.0 customers per square mile.

FIGURE 4

EFFICIENCY OF 9 HOUR SOLUTION (NO WINDOWS) RELATIVE TO 3 HOUR SOLUTION

1.8

1.7
Ratio of 9 Hour Window/X Hour Window

1.6

1.5

1.4

1.3

1.2

1 Hour 1.5 Hour


1.1
2 Hour 3 Hour

1
500 1000 1500 2000 2500 3000 4000
Customers
198 BOYER, PRUDHOMME, AND CHUNG

The second insight from examining Figure 2 involves the relative efficiency of 3 hour versus 9 hour (i.e., no
time limit) windows. Prior to conducting the simulation, the authors had believed that as customer density increased
the efficiency for the 3 hour window solution would converge on efficiency for the 9 hour (no window) solution. A
close examination of the ratio of the 9 hour solution (stops per route) to the 3 hour solution reveals that while the
results do show some evidence of converging, the results are converging very slowly, as shown in Figure 4. As
customer density increases beyond 4000 customers (i.e., 4000 customers/1250 square miles = 3.2 customers per
square mile) we would expect this ratio to approach 1, but the results indicate that a great many customers need to
be added to achieve this. Most likely consumer direct businesses such as online grocers are limited in their ability to
increase sales by this magnitude.

While the results of this study should be very useful in understanding the relationship between customer
density, delivery window length and delivery efficiency, there remain several areas for further exploration. First, this
research assumed deterministic demand. One of the primary challenges faced by companies is the need to forecast
demand and commit to delivery personnel prior to scheduling deliveries. Future research examining methods of
forecasting demand and adjusting for variability in a delivery setting would be beneficial. Second, the current
research assumed that demand was constant across days of the week and times of the day. In reality, there are large
fluctuations by day and time (Boyer, Hult, and Frohlich 2003), thus there is a need for examination of methods for
adapting to such fluctuations. Third, the choice of replication size and customer density patterns is somewhat
limiting. We used a small number of replications due to the complexity involved in solving each problema larger
set of replications may provide more exact answers. Similarly, the choice of levels for numbers of customers (i.e.,
density) could be changed in future research to allow more exact mapping of the relationship between efficiency and
customer density.

A fourth area for further exploration involves expanding beyond a focused examination on only the final routing
of orders from DC or store to the customer. Another logistical component is the grouping and picking of orders at
the DC or store prior to delivery. This is important to overall delivery efficiency and should thus be included in
future research. Finally, the growth of information technology allows companies to dynamically develop delivery
schedules in real time. Several companies are experimenting with software that calculates how a new request for a
delivery fits in with previously scheduled deliveries and assign a cost for accepting/denying that delivery request.
Research on such dynamic allocation approaches will be very beneficial in helping consumer direct companies to
improve delivery efficiency.

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ABOUT THE AUTHORS

Ken Boyer (Ph.D. The Ohio State University) is a Deans Distinguished Professor of operations management at
the Fisher College of Business, The Ohio State University. Dr. Boyer is co-Editor in Chief of the Journal of
Operations Management. He previously was a professor of supply chain management at the Broad College of
Management, Michigan State University from 2000 to 2008. Prior to that, he was an assistant/associate professor at
DePaul University from 1995 to 2000. He earned a B.S. in mechanical engineering from Brown University, and a
M.A. and Ph.D. in Business Administration from Ohio State University. Dr. Boyer worked as a project engineer
with General Dynamics Electric Boat Division in Groton, CT. Dr. Boyers research interests focus on the strategic
management of operations, electronic commerce and the effective use of advanced manufacturing technologies. He
has published articles in Management Science, Sloan Management Review, Decision Sciences, Journal of
Operations Management, and Business Horizons, among others. His research received the 1997 Chan Hahn award,
the 1996 Stan Hardy award and the 2004 Wick Skinner award. Dr. Boyer received the 2007 John D. and Dortha J.
Withrow Teacher-Scholar Award at Michigan State University. He co-wrote the book Extending the Supply Chain:
How Cutting-Edge Companies Bridge the Critical Last Mile into Customers' Homes, American Management
Association, 2005. He is a member of the Academy of Management, Decision Sciences Institute and the Production
and Operations Management Society.

Andrea Prudhomme (Ph.D. Michigan State University) is an assistant clinical professor in the Management
Sciences department and Associate Director for the Center for Operational Excellence at Fisher College of Business
at The Ohio State University. She has both CPIM and CIRM certifications from APICS: The Association for
Operations Management, where she also serves on the Certified Supply Chain Professional (CSCP) certification
exam committee. She is earning her Ph.D. in logistics and operations management from Michigan State University,
and holds an M.B.A. in operations management and quality management, and a B.S. in production and operations
management. Her research interests include managing supply chain risk and achieving operational excellence
utilizing lean and six-sigma principles. Andrea has fourteen years of professional experience in operations and
supply management with several companies, including Hewlett-Packard and Advanced Energy Industries. She is a
member of Academy of Management, Decision Science Institute (DSI), Production and Operations Management
Society (POMS), Council of Supply Chain Management Professionals (CSCMP), Institute for Supply Management
(ISM), European Operations Management Association (EurOMA), and APICS.

Wenming Chung (Ph.D. Michigan State University) is an assistant professor in the Information and Decision
Science Department at the University of Texas at El Paso. He received his Ph.D. degree in operations
management/supply chain management from Michigan State University. He also holds his M.S. degree and B.B.A.
degree in transportation engineering and management from National Chiao Tung University, Hsinchu, Taiwan. His
research interests include supply chain management, supply chain contracts design, logistics and transportation, and
stochastic inventory models. He has published in the IIE Transactions, the Annals of Regional Science, and the
Journal of Business Logistics. Wenming Chung is a member of several professional organizations that includes
Decision Science Institute (DSI), Production and Operations Management Society (POMS), and the Institute for
Operations Research and Management Sciences (INFORMS).

Contact author: Kenneth K. Boyer, E-mail: boyer_9@fisher.osu.edu