Saving Time and Money and Reducing Carbon Dioxide Emissions by Efficiently Allocating Customers

Abstract

In many industries, multifacility service providers can save time and money and reduce carbon dioxide (CO2) emissions by more efficiently allocating customers to their facilities. However, firms incur a reallocation cost when reassigning a customer to a different facility, something that has not received much attention in the literature. Software packages such as CPLEX can find the optimal solution for this type of problem, but managers rarely use them because they lack the specific knowledge, overestimate the cost, and/or underestimate the benefits. Including the reallocation costs, we modeled several common heuristics in Excel’s Visual Basic and compared the results with the optimal solution found by CPLEX. We collaborated with Van Dorp, a large service provider in the Netherlands, and found that (1) substantial savings can be achieved, (2) reallocation costs play a major role, and (3) the best heuristic achieves near-optimal results. Specifically, reallocating Van Dorp’s 20 “worst allocated” customers realizes a savings of more than 4,000 driving hours and €360,000 in cost and a reduction of 41 tons of CO2 emissions.