Horizontal logistics collaboration: decreasing costs through flexibility and an adequate cost allocation strategy

Abstract

When entering a horizontal logistics alliance, companies can expect a significant cost decrease. In this paper, we show that when the partners in an alliance adopt a flexible attitude (i.e. allow changes to the terms of their deliveries), the total cost can be further decreased. We argue that the method used to allocate the total cost to the different partners should therefore encourage such flexibility. A case study of three companies in Belgium achieves a 25.83% decrease in transportation costs. Allocating this collaborative gain with the Shapley value, the individual gains range from 19.01% to 37.56%. By allowing changes to delivery dates and allowing large orders to be split into several deliveries, the partners in the alliance can increase the collaborative gain and their individual gains. The Shapley value is found to encourage flexibility.

Keywords:

• horizontal collaboration
• cost allocation
• Shapley
• order bundling

Notes

1. The cost of a (sub)coalition including this player minus the cost of that (sub)coalition without this player.

2. These are just easy examples to show that flexibility increases the consolidation gain. We can imagine, for example, that a more realistic scenario encompasses a combination of both scenarios: a part of a delivery (split an order) is allowed to arrive a day later (i.e. time synchronisation).