Vehicle routing with shared customer consolidation in multi-channel retail

A multi-channel fulfillment model that is currently very popular is the buy-online-pick-up-in-store (BOPS) in which customers can buy goods online and pick them up in store. It is a common practice for multi-channel retailers using BOPS to have separate warehouses for online and offline channels to ensure efficient order fulfillment operations, and then transfer the goods from the individual warehouses to the stores. As a result, same stores are visited by vehicles from different channels. In this paper, we introduce a novel consolidation strategy in which the carrier of one distribution channel has the possibility to piggyback on the routes of the carrier  of another distribution channel for the delivery of goods to a set of shared customers. Since there is not enough room to outsource all the customers, we have to decide which customers to visit directly and which customers to outsource. However, there are additional costs to transfer the demand of outsourced customers from the warehouse of one to the other's. This gives rise to a trade-off between the savings achieved by outsourcing and the transfer costs. We apply our consolidation strategy to a real grocery retail case to test that substantial savings can be achieved in terms of the travel distance and the number of customer-visits. 

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