Insinking: A Methodology to Exploit Synergy in Transportation

Abstract

Over the last decades, companies' average profit margins have been decreasing and as a result efficiency of transportation processes has become critical. To cut down transportation costs, shippers often outsource their transportation activities to a Logistics Service Provider of their choice. This paper proposes a procedure that puts the initiative with the service provider instead. This procedure is based on both operations research and game theoretical insights. To stress the contrast between the traditional push approach of outsourcing, and the here proposed pull approach where the service provider is the initiator of the shift of logistics activities from the shipper to the Logistics Service Provider, we will refer to this phenomenon as insinking, the antonym of outsourcing.Insinking has the advantage that the logistics service provider can proactively select a group of shippers with a strong synergy potential. Moreover, these synergies can be allocated to the participating shippers in a fair and sustainable way by means of customized tariffs.Insinking is illustrated by means of a case study in the Dutch grocery transportation sector.

Keywords: vehicle routing, cooperative games, retailing, insinking, Shapley Monotonic Path, Logistic Service Providers

JEL Classification: C61; C71