Optimal Staffing for Online-to-Offline On-Demand Delivery Systems: In-House or Crowd-Sourcing Drivers?

Online-to-offline (O2O) on-demand services require one-hour delivery and the demands vary substantially within one day. The capacity plans in the O2O industry evolve into three main modes: (i) in-house drivers only; (ii) full-time and part-time crowd-sourcing drivers; (iii) a mix of in-house and crowd-sourcing drivers. For current capacity plans, two issues remain unclear for both academia and industry. First, what is the optimal staffing decision when considering the behaviors of crowd-sourcing drivers. Second, how to choose from different capacity plans to match different operation strategies and market environments. To address these questions, we build an M/M/n queueing model to optimize the staffing decision with the aim of minimizing the total operation costs. Incentive mechanisms for both customers and crowd-sourcing drivers are crafted to improve their loyalty towards the O2O platform, in order to better manage capacity. Moreover, we apply a real dataset from one of the largest O2O platforms in China to verify our model. Our analyses show that adding flexibility - capacity-type flexibility and agent flexibility - to the O2O on-demand logistics system can help control costs and maintain a high service level. Furthermore, conditions in which different capacity plans match with different operation strategies and market environments are proposed.