Procurement of last-mile delivery capacity: a reverse auction mechanism considering logistics service quality

Abstract

ABSTRACT The increasing demand for last-mile delivery has created a challenge for urban consolidation centers (UCCs). Due to UCC’s limited delivery capacity, it has to purchase spare capacity from carriers. In the procurement, the UCC cannot observe the carriers’ efforts, resulting in low-quality logistics services. Thus, we propose a reverse auction mechanism considering logistics service quality (LSQ) for the UCC’s procurement of last-mile delivery capacity. First, we construct the benchmark of the mechanism by introducing the LSQ in last-mile delivery and presenting a reverse auction. Then, we develop an auction model with ideas of ensuring the UCC’s incentive and awarding business to the carriers who deliver high-quality services. The case study shows that the proposed mechanism is an efficient procurement tool for the UCC with a guarantee of LSQ, and the UCC will benefit from the proposed mechanism by significant total cost saving as well as effective use of resources.