Comparison of Typical Shipment Consolidation Programs: Structural Results

Abstract

Shipment consolidation, a commonly used strategy in freight transportation, is the practice of consolidating several small items and then dispatching them on the same vehicle. If applied appropriately, a shipment consolidation program may drive out substantial costs in the logistics supply chain. However, the optimal policy for such a consolidation program in a random setting is not yet fully investigated in the literature. In this paper, we study three alternative systematic shipment consolidation programs: Time Policy, Quantity Policy, and Hybrid Policy. We consider, for one echelon of a logistics supply chain, a freight-arrival process that is Poisson and unit-sized. Accordingly, we analyze these policies and obtain structural results for which one policy is superior to the others, on the basis of total cost per order.
Key Words: Stochastic modeling; Logistics supply chain; Freight transportation; Quantity- based / time-based dispatching