Greta Laage

Greta Laage, Emma Frejinger, Gilles Savard

Freight carriers rely on tactical planning to design their service network to satisfy demand in a cost-effective way. For computational tractability, deterministic and cyclic Service Network Design (SND) formulations are used to solve large-scale problems. A central input is the periodic demand, that is, the demand expected to repeat in every period in the planning horizon. In practice, demand is predicted by a time series forecasting model and the periodic demand is the average of those forecasts. This is, however, only one of many possible mappings. The problem consisting in selecting this mapping has hitherto been overlooked in the literature. We propose to use the structure of the downstream decision-making problem to select a good mapping. For this purpose, we introduce a multilevel mathematical programming formulation that explicitly links the time series forecasts to the SND problem of interest. The solution is a periodic demand estimate that minimizes costs over the tactical planning horizon. We report results in an extensive empirical study of a large-scale application from the Canadian National Railway Company. They clearly show the importance of the periodic demand estimation problem. Indeed, the planning costs exhibit an important variation over different periodic demand estimates and using an estimate different from the mean forecast can lead to substantial cost reductions. Moreover, the costs associated with the periodic demand estimates based on forecasts were comparable to, or even better than those obtained using the mean of actual demand.

Greta Laage, Emma Frejinger, Andrea Lodi et al.

Airlines and other industries have been making use of sophisticated Revenue Management Systems to maximize revenue for decades. While improving the different components of these systems has been the focus of numerous studies, estimating the impact of such improvements on the revenue has been overlooked in the literature despite its practical importance. Indeed, quantifying the benefit of a change in a system serves as support for investment decisions. This is a challenging problem as it corresponds to the difference between the generated value and the value that would have been generated keeping the system as before. The latter is not observable. Moreover, the expected impact can be small in relative value. In this paper, we cast the problem as counterfactual prediction of unobserved revenue. The impact on revenue is then the difference between the observed and the estimated revenue. The originality of this work lies in the innovative application of econometric methods proposed for macroeconomic applications to a new problem setting. Broadly applicable, the approach benefits from only requiring revenue data observed for origin-destination pairs in the network of the airline at each day, before and after a change in the system is applied. We report results using real large-scale data from Air Canada. We compare a deep neural network counterfactual predictions model with econometric models. They achieve respectively 1% and 1.1% of error on the counterfactual revenue predictions, and allow to accurately estimate small impacts (in the order of 2%).