Allocating Costs in a Collaborative Transportation Procurement Network

• Published in: Transportation science Vol. 42; no. 2; pp. 146 - 165
• Main Authors: Ozener, Okan Orsan, Ergun, Ozlem
• Format: Journal Article
• Language: English
• Published: Linthicum, MD INFORMS 01.05.2008; Transportation Science & Logistic Society of the Institute for Operations Research and Management Sciences; Transportation Science Section, Institute for Operations Research and the Management Sciences; Institute for Operations Research and the Management Sciences
• Subjects: Alliances; Allocation (Accounting); Applied sciences; Budget allocation; Collaboration; collaborative logistics; Cost allocation; Cost analysis; Cost efficiency; Cost recovery; Evaluation; Exact sciences and technology; Finance; Game theory; Ground, air and sea transportation, marine construction; Logistics; Minimization of cost; Operations research; Procurement; Properties; Route optimization; Sea transport; Shipment of goods; Shipping industry; Studies; Sustainable development; Total costs; Transport economics; Transportation; Transportation costs; Transportation planning, management and economics; truckload shipping; United States; Procurement; Resource allocation; Theoretical study; collaborative logistics; Economy of transports; cost allocation; truckload shipping; Game theory; Freight transportation; Transportation network; Collaborative work; Cost analysis; Method study; Logistics
• ISSN: 0041-1655; 1526-5447
• DOI: 10.1287/trsc.1070.0219

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.