Strategic Network Design for Parcel Delivery with Drones under Competition Gohram Baloch, Fatma Gzara Department of Management Sciences, University of Waterloo, ON Canada N2L 3G1
[email protected] [email protected] This paper studies the economic desirability of UAV parcel delivery and its effect on e-retailer distribution network while taking into account technological limitations, government regulations, and customer behavior. We consider an e-retailer offering multiple same day delivery services including a fast UAV service and develop a distribution network design formulation under service based competition where the services offered by the e-retailer not only compete with the stores (convenience, grocery, etc.), but also with each other. Competition is incorporated using the Multinomial Logit market share model. To solve the resulting nonlinear mathematical formulation, we develop a novel logic-based Benders decomposition approach. We build a case based on NYC, carry out extensive numerical testing, and perform sensitivity analyses over delivery charge, delivery time, government regulations, technological limitations, customer behavior, and market size. The results show that government regulations, technological limitations, and service charge decisions play a vital role in the future of UAV delivery. Key words : UAV; drone; market share models; facility location; logic-based benders decomposition 1. Introduction Unmanned aerial vehicles (UAVs) or drones have been used in military applications as early as 1916 (Cook 2007). As the technology improved, their applications extended to surveillance and moni- toring (Maza et al. 2010, Krishnamoorthy et al. 2012), weather research (Darack 2012), delivery of medical supplies (Wang 2016, Thiels et al. 2015), and emergency response (Adams and Friedland 2011).