Courier Dispatch in On-Demand Delivery

Abstract

We study a courier dispatching problem in an on-demand delivery system where customers are sensitive to delay. Specifically, we evaluate the effect of temporal pooling by comparing systems using the dedicated strategy, where only one order is delivered per trip, vs. the pooling strategy, where a batch of sequential orders is delivered on each trip. We capture the courier delivery system's spatial dimension by assuming that following a Poisson process, demand arises at a uniformly generated point in a service region analogous to a circular city. We find that the dispatching strategy depends critically on customers' patience level, the size of the service region, and whether the firm can endogenize the demand. We obtain concise but informative results when there is a single courier and customers' underlying arrival rate is large enough, meaning a crowded market such as rush hour delivery. In particular, when the demand rate is exogenous (but the firm has to compensate customers to make sure that sufficient customers participate), using the pooling strategy works best if the service area is large enough to fully exploit the efficiency of pooling. Otherwise, using the dedicated strategy is optimal. In contrast, if the firm can endogenize the demand by setting the delivery price, using the dedicated strategy is optimal for a large service area, and vice versa. The reason is that it is optimal for the firm to sustain a relatively low demand rate by charging a high price for a large service radius: within this large area, the pooling strategy would lead to a long wait time because the multiple orders required for pooling accumulate slowly. Moreover, when the demand rate is exogenous, customers' patience level has no impact on the dispatch strategy, but when the demand rate can be endogenized, the dedicated strategy is preferable if customers are impatient, and vice versa. Finally, we extend our model to incorporate a general arrival rate that does not have to be large, a non-uniform distribution of orders in the service region, and multiple couriers. We find that most observations in our base model still hold in these extensions.