Efficient and flexible warehouse management
Searching for the WMS solution that fits you best?
Searching for the WMS solution that fits you best?
Accurately assigning costs in logistics has long been a challenge. Traditional cost allocation methods rely on estimates rather than precise calculations, leading to inefficiencies, misallocated expenses, and a fuzzy understanding of resource usage. The result is an imbalance—some shipments are assigned undue effort while others deliveries are underestimated for their burden on operations, creating inaccuracies that ripple through supply chains.
EPG’s Greenplan introduces Fair Cost Allocation, a globally unique algorithm developed in collaboration with discrete mathematicians from the University of Bonn. This breakthrough calculation is the first in the world to precisely compute the financial and environmental costs of each shipment, ensuring sharpened financial planning, smarter shipment assignments, and greater operational efficiency.
Traditional cost estimation strategies fall short. Most logistics providers allocate costs based on historical data or broad estimates. However, not all shipments carry the same cost burden, and failing to account for these differences leads to inflated operational expenses and cost assignment disparities.
Delivery costs are not uniform. A shipment requiring express delivery to a remote location incurs significantly more costs than one traveling a short distance with flexible timing. Without precise cost allocation, logistics providers struggle to balance cost distribution fairly across all shipments.
But economic costs aren’t the only ones that count anymore - businesses must consider the environmental toll of their deliveries as well. With increasing regulatory and corporate focus on sustainability, companies need to accurately measure and distribute carbon emissions per shipment. Traditional models do not account for the environmental impact of individual deliveries, making it difficult to track and report emissions effectively.
Fair Cost Allocation removes guesswork from cost distribution by applying advanced mathematical modeling to logistics operations. It ensures that each shipment is assigned a fair and transparent share of the total delivery cost, both financially and environmentally.
The algorithm assesses the resource consumption of each shipment, taking into account distance, urgency, delivery density, and other operational constraints. This results in cost allocations that reflect actual expenses rather than estimations.
By considering cost allocation in the context of shipment prioritization, Greenplan minimizes penalties associated with delayed or unfulfilled deliveries. The system identifies which shipments can be adjusted with the least operational impact.
Environmental impact is calculated alongside financial cost, allowing logistics providers to track and assign emissions responsibility per shipment. This is particularly valuable for companies focused on sustainability goals, carbon caps, and transparent reporting.
The core of Fair Cost Allocation is built on the "Happy Nucleolus" model, a concept from cooperative game theory designed to ensure fair cost-sharing. Developed by Prof. Dr. Jens Vygen and his team at the University of Bonn, this approach ensures that no group of shipments is overburdened in a cost-sharing scenario.
• If a shipment's cost is lower within the assigned network than if it were delivered alone, it benefits from the network and remains “happy.”
• If a shipment’s cost burden is disproportionately high, the algorithm redistributes costs to maintain fairness.
This method prevents cross-subsidization, ensuring that every shipment is fairly priced based on its actual impact on the network.
Third-Party Logistics (3PL) Providers – Ensure transparent, fair cost-sharing among clients while reducing inefficiencies in network planning.
Retail and E-Commerce – Improve pricing models and last-mile delivery efficiencies by aligning shipping costs with actual resource usage.
Post and Parcel Operators – Optimize multi-network parcel assignments to lower costs while maintaining service levels. Read more…
Fair Cost Allocation is already in use with Greenplan customers, and the results are clear: improved cost transparency, optimized shipment assignments, and more sustainable logistics operations.
To learn more about how Fair Cost Allocation is transforming delivery worldwide, contact us today.
