Dynamic pricing services to minimise CO2 emissions of delivery vehicles

In recent years, companies delivering goods or services to customers have been under increasing legal and administrative pressure to reduce the amount of CO2 emissions from their delivery vehicles, while the need to maximise profit remains a prime objective. In this research, we aim to apply revenue management techniques, in particular incentive/dynamic pricing to the traditional vehicle routing and scheduling problem while the objective is to reduce CO2 emissions. With the importance of accurately estimating emissions recognised, emissions models are first reviewed in detail and a new emissions calculator is developed in Java which takes into account time-dependent travel speeds, road distance and vehicle specifications. Our main study is a problem where a company sends engineers with vehicles to customer sites to provide services. Customers request for the service at their preferred time windows and the company needs to allocate the service tasks to time windows and decide on how to schedule these tasks to their vehicles. Incentives are provided to encourage customers choosing low emissions time windows. To help the company in determining the schedules/routes and incentives, our approach solves the problem in two phases. The first phase solves time-dependent vehicle routing/scheduling models with the objective of minimising CO2 emissions and the second phase solves a dynamic pricing model to maximise profit. For the first phase problem, new solution algorithms together with existing ones are applied and compared. For the second phase problem, we consider three different demand modelling scenarios: linear demand model, discrete choice demand model and demand model free pricing strategy. For each of the scenarios, dynamic pricing techniques are implemented and compared with fixed pricing strategies through numerical experiments. Results show that dynamic pricing leads to a reduction in CO2 emissions and an improvement in profits.