Outsourcing Logistics: Designing Transportation Contracts Between a Manufacturer and a Transporter

Abstract

In our environment, a manufacturer procures material from a supplier and the supplier brings it in bulk to a warehouse. This material is then consigned to the plant area, where it is utilized as an input of the production process. This consignment process is outsourced by the manufacturer and a transportation company is selected via a bidding mechanism. Primarily, we consider the problem of designing parameters of a given contract for the transportation activity. We define three subproblems within the contract design problem that interact with each other to a certain extent. These subproblems are the vehicle dispatching problem, inventory control problem, and contract value problem. We define these problems, exploit their interactions, and propose solution methods. Moreover, we present an approach to design such transportation contracts, which is based on solving these subproblems in an order for an adequate number of contract parameter combinations and selecting the one that minimizes expected total costs for the manufacturer.

Penalty and reward contracts between a manufacturer and its logistics service provider

“…For the party purchasing logistics services, working with an experienced LSP may be appropriate, since working with a random or untested LSP may lead to damaged products, delays, low quality service, and, accordingly, additional costs and the loss of business. Although profits may not increase as a result of coordination [28], the costs arising from lack of coordination may be eliminated.…”

“…Notably, Alp et al [28] modeled the contracts between a manufacturer and its LSP within the framework of a bidding mechanism. However, in our study, the LSP has already been selected, and therefore, contract parameters, which would make the LSP fulfill the manufacturer's delivery orders, have to be determined.…”

Pricing and timing of consolidated deliveries in the presence of an express alternative: Financial and environmental analysis

“…Yan et al (1995) use network ow models to estimate the alternative costs of intermodal transports to guide the pricing decisions of the service. Relationship-specic pricing, where the price is determined by a powerful customer, is discussed in Henig et al (1997) and Alp et al (2003), who analyze a buying rm's problem of how to simultaneously determine inventory policy and transport contract parameters in a periodic review inventory model. Brusset and Temme (2005) and Berling and Eng-Larsson (2014) analyze the transport contract choice in a situation where the nal prices of the contracts are outcomes of a game between then service provider and a single customer.…”

A Survey and Analysis of Outsourcing in East China

“…Outsourcing has received increasingly attention in scientific research, but so far it has mainly been theoretical in nature and relied mostly on anecdotal evidence to support assertions (Shy, 2003;Benjaafar, 2007). Moreover, most of them focus on very specific industries, for example, call center (Ren, 2009), information technology (Jae-Nam Lee, 2004), Manufacturing (Dekkers, 2000), or Logistics (Alp, 2003;Ellram, 2001). However, few empirical investigations of outsourcing (Gilley, 2000), especially in specific regions or countries have been conducted (Bush, 2008;Baily, 2002).…”