Real time simulation of auctioning and re-scheduling processes in hybrid freight markets

Abstract

In the freight logistics business, supply chains are under strong pressure to provide customized goods and services. Individualized product deliveries, modifications in product specification, late orders and volume changes need to be accommodated within strict delivery time frames. This uncertainty in demand can only be accommodated by allowing for slack capacity and time in trip planning. As this overbooking creates substantial costs, however, firms will attempt to minimize these costs by further optimizing and re-organizing their distribution channels. In this paper we look at the feasibility of one such solution, a hybrid system of contracting freight carrying services. Here, part of the services are provided by various carriers using contracts for a fixed base volume of freight, which results in planned delivery tours. Additional to these volumes, peaks resulting from additional shipments are accommodated by one or more of these carriers within an auction setting based on price and quality of service. The additional freight is won by the carrier that has the most flexible trip planning in terms of capacity, service quality and costs. We test the effectiveness and efficiency of this contracting system by means of a simultaneous, real time simulation of the execution of planned tours, the auctioning process and the re-scheduling of tours. The model provides us with new insights on the dynamics of bidding behaviour on the side of carriers and shippers.