Economies of Product Diversity in Collaborative Logistics

• Published date: 01 June 2017
• DOI: http://doi.org/10.1111/jbl.12153
• Date: 01 June 2017

Economies of Product Diversity in Collaborative Logistics

Yoshinori Suzuki and Shih-Hao Lu

Iowa State University

Collaborative logistics, also known as shipper collaboration, is a method of reducing the freight logistics cost of firms that produce and/or

distribute tangible goods (shippers), which seeks to improve capacity utilizations of trucks. This study looks at this shipper collaboration

problem in the U.S. truckload (TL) industry and proposes a new approach. Unlike other studies, which focused on reducing TL costs by

utilizing economies of density, we present an approach that utilizes specific TL economies gained by mixing multiple products with different

weight-to-volume ratios, which we call economies of product diversity. Using theoretical and empirical evidence, we show that the performance

of shipper collaboration can be enhanced notably using this concept, economies of product diversity, which is currently overlooked in the

literature.

Keywords: transportation cost; trucks; collaborative logistics; optimization; integer programming

INTRODUCTION

Reducing the freight logistics cost, in particular the truck trans-

portation cost, is a topic of interest for many supply chain

researchers, as this cost accounts for a significant proportion of

the total cost for most, if not all, firms that produce and/or dis-

tribute tangible goods (shippers) (e.g., B€

uy€

ukkaramikli et al.

2014). One method of reducing the costs of truck transportation,

especially in the truckload (TL) segment (the largest segment of

the trucking industry), is the use of a technique called collabora-

tive logistics (Gonzalez-Feliu et al. 2013), which is also called

shipper collaboration (Ergun et al. 2007b). By sharing the

freight-tendering information among participants, shipper collab-

oration seeks to cut transportation costs by improving the capac-

ity utilization of trucks and reducing unnecessary truck

movements. We take a look at this shipper collaboration problem

in the U.S. TL industry. The primary research question addressed

is as follows: How should shippers collaborate in the freight-

tendering process to jointly minimize their TL shipping costs?

We present one approach that is grounded in theory and sup-

ported by industry experts.

The problem we consider in this study seeks to combine (con-

solidate) smaller (“less-than-TL”[LTL]) shipments of multiple

shippers into a large, full TL shipment to take advantage of the

lower TL rates and to minimize overall truck movements. Previ-

ous studies that addressed this problem have focused on develop-

ing the methods that utilize economies of density, the concept

which suggests that the cost of transportation in a given lane

becomes lower by increasing the capacity utilization of the trucks

used in the lane (where the capacity can be measured by either

volume or weight dimension). This forced the past studies to make

the following two assumptions. First, if a load is not a full TL

shipment, the “unused”capacity of the truck should be filled by

accepting any product of any shipper to improve the capacity uti-

lization. Second, if a shipper’s load is already a full TL shipment

(i.e., no further loading is possible because either the weight or

volume capacity is reached), then there is no need to perform col-

laboration with another shipper. Because these assumptions make

much intuitive sense, they are also widely adopted in practice.

The use of these assumptions, however, does not always pro-

vide the best results in terms of minimizing freight logistics cost

for shippers, as they do not necessarily maximize the capacity uti-

lizations of trucks in terms of both weight and volume dimensions.

Notice that these assumptions implicitly suggest that shippers

should perform freight consolidations by filling the unused truck

capacity to the extent possible (by accepting any load iteratively)

until either the volume or weight capacity has been reached

(whichever comes first). Consequently, shippers maximize either

the volume or the weight capacity utilization of trucks with these

assumptions, but not both. This implies that better results may be

obtained by relaxing these two assumptions.

In this study, we present one approach that does not rely on

these “seemingly intuitive”assumptions. Unlike the past studies,

our approach jointly maximizes the volume and weight capacity

utilizations of trucks using a concept largely overlooked or

ignored in the past, which can be gained by mixing a variety of

products in a given shipment (truck). Using this concept, which

we call economies of product diversity, we address the shipper col-

laboration problem in the U.S. TL industry from a different per-

spective. In essence, this study proposes a novel framework which

shapes the way shippers should collaborate in the TL industry to

remove capacity utilization inefficiencies that exist in the current

shipper collaboration practices. We show, both theoretically and

empirically, that the performance of shipper collaboration can be

enhanced considerably by using the proposed concept. Although

this study focuses on applying the concept to TL transportation,

the concept can be applied to other modes of transportation too.

LITERATURE REVIEW

Types of research

To date, three types of shipper collaboration have been studied

in the trucking industry. Perhaps the most widely studied type

is inventory and terminal consolidation (Hall 1987), which can

Corresponding author:

Yoshinori Suzuki, Department of Supply Chain & Information

Systems, College of Business, Iowa State University, 2340 Gerdin

Business Building, Ames, IA 50011-1350, USA; E-mail: ysuzuki

@iastate.edu

Journal of Business Logistics, 2017, 38(2): 115–129 doi: 10.1111/jbl.12153

© Council of Supply Chain Management Professionals