To Start Up a Start-Up$-$Embedding Strategic Demand Development in Operational On-Demand Fulfillment via Reinforcement Learning with Information Shaping
This addresses a specific operational challenge for on-demand transportation start-ups, representing an incremental improvement by applying existing methods to a new context.
The paper tackles the problem of on-demand delivery start-ups struggling to establish a customer base by integrating strategic demand development into real-time operational fulfillment using a reinforcement learning approach with information shaping, demonstrating that this combination is highly advantageous.
The last few years have witnessed rapid growth in the on-demand delivery market, with many start-ups entering the field. However, not all of these start-ups have succeeded due to various reasons, among others, not being able to establish a large enough customer base. In this paper, we address this problem that many on-demand transportation start-ups face: how to establish themselves in a new market. When starting, such companies often have limited fleet resources to serve demand across a city. Depending on the use of the fleet, varying service quality is observed in different areas of the city, and in turn, the service quality impacts the respective growth of demand in each area. Thus, operational fulfillment decisions drive the longer-term demand development. To integrate strategic demand development into real-time fulfillment operations, we propose a two-step approach. First, we derive analytical insights into optimal allocation decisions for a stylized problem. Second, we use these insights to shape the training data of a reinforcement learning strategy for operational real-time fulfillment. Our experiments demonstrate that combining operational efficiency with long-term strategic planning is highly advantageous. Further, we show that the careful shaping of training data is essential for the successful development of demand.