Production, Manufacturing, Transportation and Logistics
Examining the value of flexible logistics offerings

https://doi.org/10.1016/j.ejor.2020.08.056Get rights and content

Highlights

  • We argue on the importance of flexibility in omni-channel customer experience.

  • We evaluate logistics offerings that allow post order placement modifications.

  • Under certain conditions these can be beneficial for both retailers and customers.

  • Digital systems act as enablers for the implementation of such flexible offerings.

Abstract

In the order fulfilment and retail industry, the provision of fast and low cost delivery services has received significant focus over the last decade. What is often neglected is other factors that contribute to a customer’s overall experience like customisation and flexibility of deliveries, especially in cases when a customer’s needs and plans change between order placement and order delivery. This paper explores the value of a flexible type of logistics offering in which the customer is able to change the order requirements (such as delivery date) after the order has been placed. In particular, we focus on the interactions between a retailer and a customer in agreeing and executing such logistics orders. We examine the benefits of this type of flexible logistics offerings because flexibility and customisation are critical factors for the success of omni-channel commerce. Such offerings are clearly connected with recent developments in digital technologies as these technologies are essential for the implementation. Our results indicate that flexible logistics offerings can be beneficial both for retailers and for customers. They also highlight the importance of receiving orders that do not fully meet the requirements of a customer.

Introduction

E-commerce retailing has experienced a tremendous growth over the last decade Lin, 2018, Melacini, Perotti, Rasini, Tappia, 2018, Statista. This is evident in terms of growth in revenue, number of consumers choosing to order online, number of orders placed, and even parcels distributed to end customers. The adoption of omni-channel practices by multiple online retailers and platforms and the seamless experience they aim to create is argued to be one of the main reasons for this phenomenon [15]. Besides being able to place an order via a number of channels, this experience is highly affected by the selection of post order placement practices such the delivery of an order to the end-customer. Indeed, the choice of logistics operations play a key role for the proper delivery of an order but also for customer satisfaction in general [14].

Recognising the importance of post order placement to the customer experience, retailers place significant efforts in improving it, with a clear focus towards speed (i.e. lead time reduction). Indeed, one can see initiatives ranging from next-day deliveries to even 1–2 hour deliveries receiving a lot of attention by academia and practice Bensinger, & Dulaney, Lin, Zhou, Du, 2018. Even though these initiatives improve customer satisfaction to a certain extent, they also create logistics and environmental challenges due to the high number of frequent small deliveries they generate Fernie, Sparks, McKinnon, 2010, Ivanova, Kembro, Norrman, Eriksson, 2018. Other initiatives, target the need for customisation and flexibility for e-commerce deliveries with practices that support post ordering amendments to an order’s contents, delivery location, speed and time FedEx, UPS. These practices are very often supported by digital systems that enable (almost real-time) interaction between customers and retailers for the proper handling of an order Holmström, Främling, Ala-Risku, 2010, Mou, Robb, DeHoratius, 2018.

This study focuses on this latter issue, and more specifically, the evaluation of logistics services that allow order amendments should a customer’s requirements change after the placement of an order (therein flexible logistics offerings1). We do this by developing a game theoretic model that analyses the interactions between customers and retailers. More specifically, the model is used to assess the value of such offerings and examine when and whether they provide benefits to retailers and customers. In short, this study aims to answer the following research question: How can the value of flexible logistics offerings be measured and under which conditions can they be beneficial for a retailer and a customer? Indirectly, this study also identifies the (types of) products/orders that are best suited for flexible logistics offerings.

This paper is organised as follows: we first review in Section 2 the relevant literature on customisation and flexibility in logistics and the systems supporting those. We then develop a model that more formally describes a flexible logistics offering along with a game that studies the interactions between retailers and customers in Sections 3 and 4 respectively The game is adapted and further studied in Section 5. A critical discussion on the study’s findings and associated issues follows in Section 6. We conclude this paper with a discussion on this study’s contributions, limitations and future research in Section 7.

Section snippets

Background

In this section, we provide the necessary background covering two main aspects: firstly, we look at customisation and flexibility in logistics operations and the connections they have with other areas in the literature. Secondly, we discuss the role information and digital technologies have in developing systems to support such services.

In today’s multi-channel supply chains, customer orientation has been recognised as a critical aspect of a company’s success Jeong, Hong, 2007, Kalia, 2017,

The model

This section introduces a model for describing the flexible logistics offerings that allow a customer to make amendments to a placed order should his requirements change. We first present the assumptions behind this model and we then summarise the flexible and fixed logistics offering in this setting.

The model concerns two parties: a retailer and an end-customer. The end-customer purchases goods by the retailer, by placing orders via an available channel (e.g. online, mobile, over the phone).

The game

A game with two players (provider and customer) can be developed to formalise and examine the interactions between the provider and customer as they were described in the previous section. The game is played in 4 sequential stages. At the first stage of the game, the provider makes a decision between offering a flexible logistics offering to his customer or limiting the customer to a fixed offering only (noted by Flexible and Fixed). This will impact the customer’s options later on (i.e. if his

Game variations

In this section, we present variations of the two-option game to study two other interesting cases of flexible logistics offerings. In the first case, we require the customer to pay a fee up front in order to be able to amend his initial choice if needed. This is inspired by our analysis in the previous section that showed that a customer is always better off when given access to a flexible logistics offering. In the second case, we relax the provider’s need to set a price for the extra service

Discussion

Following the analysis conducted in the previous sections, the key outcome related to the research question posed in Section 1 is that a logistics offering that allows amendments to be made to an order’s details after its placement can be beneficial both to the customer who receives the service but also to the retailer who provides it. Via a flexible logistics offering, a customer gets the opportunity to initially choose cheaper options for the delivery of his order and, if needed, request and

Conclusions

This research study has investigated the value of flexible offerings in logistics that target post order placement services. These logistics offerings allow customers to modify their initial decisions about the orders/services requested before their delivery by a retailer. A game-theoretic model was developed to investigate the main research question and compare the relative benefits of fixed and flexible logistics offerings and the conditions under which the latter can be beneficial for

Acknowledgments

The authors are grateful to James and James Fulfilment Ltd. for their valuable contribution to this study. This study has been funded via the “Individual Assessment Scholarship Programme of the State Scholarship Foundation of Greece 2011–2012” using funds from the “Education and Lifelong Learning” Operational Programme of the European Social Fund (ESF) and the NSRF, 2007–2013.

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