A route optimization approach for incentivizing self-pickups in last-mile deliveries

COVID-19 has further accelerated the growth of e-commerce, stimulating the demand for last-mile deliveries. Parcel lockers (PLs) allowing self-pickups offer a remedy to mitigate the adverse effects associated with traditional door-to-door deliveries. However, consumer preference for free or cheap home delivery remains a substantial obstacle to the widespread adoption of PLs. Thus, e-commerce companies and logistics service providers (LSPs) may need to devise effective incentive strategies so that customers opt for receiving their orders from PLs. In this study, we first investigate potential savings for LSPs by employing PLs instead of customer addresses as delivery points and adopting a route-optimization approach. Our computational experiments reveal a substantial reduction in delivery fleet travel distance and size, indicating potential cost savings up to 78.9%. Then, we examine various incentive mechanisms through which LSPs may share the savings with the customers, finding that distance-based incentives offer the highest gain. Nevertheless, our sensitivity analyses underscore that the savings may significantly diminish if PLs have highly limited capacities or customers prefer collecting their orders only from the nearest PL.