Predictive Modeling for an Effective Resource Allocation: Foreseeing Rappi Courier Shortage for the Sake of Improving Service Quality Daniela Abisambra Suárez 201530717 Mateo Marulanda Cardona 201615566 Los Andes University – Bogotá, Colombia Advisor: Daniel Eduardo Suárez Bayona Co-advisor: Camilo Hernando Gómez Summary Rappi is a Colombian startup whose activity revolves around home delivery services of a diverse product portfolio in multiple Latin American cities. To create value via delivery and commerce, this venture uses integrated technological and physical channels materialized by a mobile app and a courier network that interact with supply and demand to achieve service completion. To reach an efficient network synergy the venture must overcome several operational challenges such as an assertive human resource allocation: delivery couriers should be strategically placed over the city surface to diligently satisfy demand at any given time. However, due to their business model, Rappi isn’t allowed to call couriers for specific placements, representing a boundary to any allocation policy implementation. The present consultancy aims to develop a methodology supporting demand-synchronized courier allocation objectives that contributes to the company’s goal of developing business convenient circumstances via analytic tools. The developed methodology seeks to enhance operational performance and user satisfaction by proposing a robust prediction of courier deficit per cluster, suitable to meet the organization´s specific context and needs, and a resource allocation model designed to relocate couriers between high-demand clusters. Introduction Rappi Rappi is a Colombian venture whose business purpose consists of “delivering to the consumer any service or product, in a same place without having to move” (Corporate Rappi, 2019). This organization seeks to simplify its clients´ everyday life by focusing on freeing up their time, so they can spend it on their favorite activities, being a transaction cost reducer. This startup was founded in 2015 by a group of entrepreneurs: Simón Borrero, Felipe Villamarín and Sebastián Mejía (Semana, 2018) in response to users´ need to receive their preferred products and services without time consumption. Nowadays, the company has over 13 million users in at least 27 different Latin American cities (Semana, 2018). The company operates as a commercial platform, connecting supply and demand for multiple goods and services, offering transactional closure and a delivery service that joins economically and physically two key stakeholders: consumers and product manufacturers. Via exchange and social cost reduction, Rappi´s business model improves economic transactions within agents, connecting people through a digital platform (mobile app and website) that represents the technological channel used by the organization to deliver value to final users (Corporate Rappi, 2019). Rappi´s digital channel is 1 integrated to their physical channel, conformed by a courier delivery network, accounted by the company´s human resource called Rappitenders, and the transportation infrastructure (motorcycles and bicycles) used by the couriers to deliver products ordered by clients via technological platform. The fundamental stakeholders for Rappi’s operations are suppliers, customers and couriers. Firstly, supplier businesses offer goods and services to Rappi´s users such as restaurants, supermarkets, banks and more; they use Rappi´s physical and technological channels as a sales instrument to reach target consumers and stay top-of-mind; their interests regarding this company include diligent delivery of their products to their customers, an effective transactional tool where they capture their sales, and visibility in Rappi´s digital platform as a merchandising strategy to generate awareness and purchasing consideration. Secondly, customers use the mobile app and website to buy offered products, expecting a courier to deliver what they asked digitally at a specific address, as well as a short-time delivery, and a broad range of products to pick from on the digital platform to satisfy their needs. Thirdly, couriers use this business as a source of income, they want to deliver products in an efficient way to take advantage of time spent working in the network (Corporate Rappi, 2019). Figure 1 explains Rappi´s role within key operational stakeholders: Figure 1 Rappi´s Key Operational Stakeholders Relationship Figure 1 explains how Rappi´s digital channel is used by users to create delivery orders; this action triggers the whole system. Then suppliers deploy service preparation (if needed), and a courier takes the ordered product(s) to customers. As well, managers and owners are fundamental in business daily operations, in them relies much of the enterprise’s success. Rappi´s service portfolio has evolved since the business started, current portfolio includes the original delivery service of food (home delivery) plus complementary services such as grocery shopping, a transactional platform (RappiPay), cash delivery (RappiCash), personalized delivery service (RappiFavor), and more. All of them have been developed upon customer request (Borrero in Semana, 2018). Consultancy Objectives Rappi´s operations department is currently interested in finding solutions that improve service quality and performance by solving every business challenge they face or encounter. An important opportunity they found, focuses on balancing supply and demand of goods, spatially and through time, in every city they serve as there are moments where are not enough couriers available in a specific area to attend demand. A section of this challenge implies the creation of an appropriate courier allocation scheme in urban areas where the company operates: a successful domiciliary assignment throughout any city geography aims to be consistent with demand behavior, boosting network´s performance, number of couriers delivering on time, and minimizing unattended orders. 2 Our fist interviews with Rappi´s staff consisted of understanding the problem with operations department members. They described Rappi´s current situation: order allocation methodology doesn´t rely on a predictive demand algorithm, causing a myopic activity that keeps couriers static and distant from places where demand is expected to rise soon. To enhance network´s performance, a predictive approach should be designed in order to count upon more precise information when taking actions to improve the courier allocation. Given the problematic situation, the objective of this consultancy consists of designing a methodology with predictive approach, by forecasting courier shortage at any given place and time, showing where Rappi should locate its couriers in order to achieve a greater balance between supply and demand. Subsequently, propose an optimization and resource allocation model that suggests how couriers should be assigned to specific zones as a proactive resource to guarantee couriers will be in the place they are required when needed, minimizing unattended orders. Input Data To design such methodology, Rappi’s historical data from Bogotá was utilized as an input for building a predictive algorithm, this data represents business turnover in one of the most relevant cities for the company. To comply with the privacy policy and non-disclosure agreements consent with Rappi, data and indexes shown now on might be modified but the document still explains in depth implemented research and procedure, only cluster names are different from real and specific figures obtained by the described approach are expressed in relative measures rather than absolute numbers. Historical data included average active couriers and orders per geographic zone in Bogotá, during almost two months (Aug-5-2019 to Sept-27/2019) of operations with an observation frequency of 15 minutes. Clusters are a set of 150mx150m quadrants where orders rise from, the number of quadrants making up any zone varies because there are city places with more order emergence than others. There are 19 clusters compounding Bogotá, every zone presents specific order and courier activity, so courier allocation should reflect their dynamism, which is shown in Figure 2: High Activity Low Activity Figure 2 Cluster Order Activity in Bogota, August 2019 Hence, Figure 2 shows how different clusters present different order emergence: clusters with higher order surge should have a more intensive courier presence as well as a balanced and maximized type one service level (known as the probability to not have an out-of-stock situation) as they produce a high proportion of the company’s cash flow. This order arrival diversity is represented by every cluster’s centroid scope in Figure 3: 3 Figure 3 Cluster Centroid Behavior by Order Emergence in Bogotá In Figure 3 every blue bubble center represents a cluster centroid, which is the main gravitational point, and it´s coverage or relevance is symbolized by the circle´s scope. The chart reveals Usaquén, Chapinero, Barrios Unidos and La Candelaria are very important demand locations. Research Structure To build an appropriate mechanism composed by a forecasting methodology and an optimization model oriented to the order assignment, aimed to predict and prevent courier shortage, we adopted the following methodology: 1. Summarize related and relevant literature to describe the Meal Delivery Routing Problem (MDRP) faced by Rappi’s everyday operations and some forecasting approaches for geo-temporal