Transportation Service Procurement With Total Quantity Discounts

Project: Research

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For more than a decade, we have been working with large companies such as Philips to manage their worldwide transportation procurement contracts. Due to the recent changes in the shipping environment, we would like to study the optimization problem of assigning lanes and quantities to service providers with total quantity discounts. We named this problem, transportation service procurement with total quantity discount.Existing work includes investigations on different practical business constraints such as limiting the number of winner carriers, committing a minimum quantity of freight to each winner carrier and requiring a minimum number of carriers to provide transportation service. There is a lack of literature on transportation service procurement problem with the total quantity discounts. While there is a growing body of research work on optimization problems with total quantity discounts, none of these are on the transportation service procurement problem that includes the practical business constraints.This work attempts to combine the total quantity discounts in the context of practical business constraints. We will develop an optimization model to characterize the impact of total quantity discount factors, integrating transportation service procurement with practical business constraints, so as to minimize the total cost. To express the total quantity discounts, the model becomes more complex by introducing additional decision variables and constraints. In our research plan, we will develop new solution methods for this problem, including exact methods and heuristics, by applying a suite of optimization techniques with sophisticated analysis on the nature of the model. Extensive experiments on a set of data generated from practice will be carried out to test the different methods. Effective methods will be identified and extended for applications in practice.The contribution of this project is two-fold. First, formulating and solving the transportation service procurement problem that integrates the total quantity discount structure and a set of practical business constraints will produce new analytical tools that enhance best practices in transportation service procurement. The results will be of a great impact to the industry practice. Second, progresses on development of effective solution methods for the model can provide intelligent methods for handling the different business constraints, and identify strong valid inequalities and dedicated procedures for solving problems under a total quantity discount structure, thus contributing to the academic literature in this and related areas


Project number9042140
Grant typeGRF
Effective start/end date1/08/1423/12/15

    Research areas

  • Transportation procurement,Total quantity discounts,integer programming,heuristics,