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Allocating Costs in a Collaborative Transportation Procurement Network

Author

Listed:
  • Okan Örsan Özener

    (H. Milton Stewart School of Industrial and Systems Engineering, Georgia Institute of Technology, Atlanta, Georgia 30332)

  • Özlem Ergun

    (H. Milton Stewart School of Industrial and Systems Engineering and The Logistics Institute, Georgia Institute of Technology, Atlanta, Georgia 30332)

Abstract
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.

Suggested Citation

  • Okan Örsan Özener & Özlem Ergun, 2008. "Allocating Costs in a Collaborative Transportation Procurement Network," Transportation Science, INFORMS, vol. 42(2), pages 146-165, May.
    • Handle: RePEc:inm:ortrsc:v:42:y:2008:i:2:p:146-165
    DOI: 10.1287/trsc.1070.0219
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    References listed on IDEAS

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