A multi-period order allocation model of two-echelon logistics service supply chain based on inequity aversion theory

Abstract

By considering a two–echelon supply chain composed of a logistics service integrator (LSI) and several functional logistics service providers (FLSPs), this paper builds an adjusted order allocation utility (AOAU) function of FLSP during multi–period based on inequity aversion theory, and then establishes an order allocation model within multi–period logistics service supply chain. When FLSP's inequity feeling exceeds its patience limit, LSI can make quick or postpone improvement about the allocation plan for the next period. The aim of this proposed model includes two goals: one is to maximise the profit of LSI and the other is to maximise the comprehensive order allocation utility (COAU) of FLSPs. The ideal point method is used to obtain the optimal solution and a numerical example is given by software MATLAB 7.10. The effects of FLSPs' behaviour parameters on order allocation are analysed in detail. The results show that the profit of LSI and the COAU of FLSPs will decrease with the increase of inequality aversion coefficients of FLSPs but it cannot be increased endlessly through changing the patience limit of FLSPs. Additionally, postponed improvement adopted to order allocation model has better effects than that of prompt improvement.