Courier Dedication vs. Sharing in On-Demand Delivery

Abstract

The on-demand delivery platforms for food and grocery have grown rapidly. One claimed benefit of those platforms is the potential to optimize courier routing by sharing couriers among many vendors such as restaurants or grocery stores. However, it is puzzling to observe that the largest food-delivery platforms do allow restaurants to employ their own delivery units. To study whether and how courier sharing contributes to the reduction of delivery costs, we consider a spatial queuing model in which couriers are servers and it takes a different amount of traveling time to serve customers depending on their vendor of choice, their own location, and the dispatch policy. We compare the performance of a dedicated courier policy where couriers work for a single vendor and a sharing policy where couriers can be shared between different vendors and travel to the closest vendor, under both the growth target and profit maximization strategies of the platform which map to the early and established stage of a startup. Surprisingly, we find that in many cases the dedicated policy can perform better than the sharing one. This result is attributed to the imbalance and randomness in the courtier allocation that sharing creates. Under the growth target strategy, if the market is sufficiently large, the sharing policy achieves a higher profit than the dedicated, and otherwise if the market is small, the dedicated policy is more profitable. However, under the profit maximization strategy, we find that it is even more likely the dedicated policy is optimal: in addition to the market size condition, a high service value is required for the sharing policy to be optimal. This is because under profit maximization, the platform may want to increase delivery fee and force out distant customers, which limits the application of courier sharing. In addition, we show that in the markets where restaurants have more distinctive cuisine the sharing policy works better and otherwise, in markets with similar restaurants, the dedicated policy gets an edge. Lastly, we extend the results from the base model to account for multiple couriers and impatient customers.