Impact Of Outsourcing Logistics Channel Contracts On Supply Chain Coordination And Performance

With the globalization and integration of businesses, the competition betweenenterprises has become the competition between supply chains. Many large enterprisestend to outsource their logistics functions to third party logistics (3PL) service providers,in order to focus on their core businesses. High level and professional third party logisticsservice can not only help customers reduce logistics costs, but also can help customersimprove customer demand for products, and achieve sales revenue growth. Supply chaincoordination with3PL service providers can mainly gain two advantages: one is to reducethe resulting double marginalization effect from the3PLs’ decision-making behavior, andsave the total cost of the supply chain; the other is to improve logistics service levels, andenhance the efficiency and flexibility of the supply chain. From the two perspectives, thisthesis studies how to design effective contracts to coordinate the benefit conflicts amongthe supply chain members including a3PL service provider.Firstly, under the assumptions that the shipping costs is endogenous and theoperating cost incurred by all channel members is a nonlinear function of the retailer’sorder quantity, a coordinated pricing strategy for a three-level supply chain consisting of asupplier, a retailer and a3PL service provider is developed. Analysis shows that the jointprofit is increased because both the demand is increased and the unit operating cost isreduced as a result of joint coordination. Given that the retailer employs the jointEconomic Order Quantity (EOQ), the proposed nonlinear wholesale and transport servicepricing scheme leads to a perfect coordination mechanism. The sharing ratios of thetransport service cost between the supplier and the retailer have no influence on the jointsystem’s profit and the profits of all chain members in the decentralized system. However,it has an impact on the value of wholesale prices in the two systems. This shows thattransport service costs borne by the supplier are passed on to the retailer.Secondly, considering that the market demand is influenced not only by the productprice but also by the factors, such as the dominative revenue, consumption priorities ofconsumers and season change, the assumption that the market demand is stochastic isprovided to better simulate and explain actual things. Under the assumption, the impact ofsupply chain coordination including the3PL service provider on the system-wide costimprovement is analyzed. The retailer’s optimal order quantities and the manufacturer’soptimal lot-size multipliers under two different decision-making scenarios with the consideration of stocking factor are identified. It is shown that the joint cost does notexceed the total channel cost under the decentralized decision-making. Analysis alsoshows that under the assumption that the manufacturer is in the dominant position in thechannel, he/she can induce the retailer to use the joint EOQ order quantity via quantitydiscounts that would improve the manufacturer’s expected yearly profit, while notworsening both the overall financial conditions of the retailer and the3PL serviceprovider.Thirdly, the impact of supply chain coordination including a3PL service providerwith general transportation cost structure on the system-wide cost improvement is studied.The operating costs of the3PL service provider include a fixed delivery cost, associatedwith each dispatch regardless of the fleet size used or the dispatch quantity, as well as astepwise freight cost, associated with truck capacity. A heuristic solution procedure for thecomputationally challenging joint model is provided, based on which a finite time exactalgorithm is given. Under the assumption that the manufacturer holds the dominantposition in the whole supply chain, the effective coordination that minimizes the totalchannel cost can be achieved by employing both quantity discounts and fixed feespayment simultaneously. This mechanism discourages the retailer from ordering largequantities. This nontraditional result is due to truck cost and capacity considerations.Finally, on the base of the former study, this thesis investigates the coordinatingcontract design problem for the3PL service provider and the client enterprise withlogistics service levels and selling price dependent market demand. The optimal policiesare studied in the integrated and decentralized outsourcing logistics channels under theassumption that demand for the product has a multiplicative functional form. When thedemand is influenced by both the effort levels of logistics service and the selling price, thetraditional revenue-sharing contract can’t coordinate the channel. It is shown that aproperly designed combination contract with revenue-sharing and effort-cost-sharing cancoordinate not only the inventories and the selling price but also the effort levels oflogistics service, and it can achieve a win-win outcome. In addition, a sharing scheme tothe extra joint profit and the optimal revenue-cost-sharing contract parameters arederived.