Dynamic Programming Model for Attended Delivery Time Slot Management

Abstract

Offering customers the choice of delivery time slots is an emerging business strategy in attended home delivery service because this option has the potential to improve service level and reduce the risk of delivery failure. A dynamic programming model was developed for assisting attended delivery service providers with pricing decisions in managing time slots. Since the choice of delivery time slots involves both marketing and operational issues, a proposed dynamic pricing model maximizes the total system expected revenue while also improving the matches between customers’ and service providers’ preferred time slots and fees. The study started by managing homogeneous time slots with three kinds of customer behaviors (i.e., price taker, price negotiator, and leave-without-pay) and then considered heterogeneous time slots. The study found that the optimal price might vary depending on customers’ arrival rates in the system, the remaining capacities of available time slots, the percentages of customers who are price negotiators, and the time left in the sales periods.

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