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Abstract
Nowadays, tardiness has become a significant risk in the logistics industry. To address this problem, we introduce the tardiness risk index to quantify both the magnitude of the tardiness risk and the maximum probability of tardiness occurring. In this paper, we investigate the contract design problem with the tardiness risk index to mitigate the tardiness risk when a fourth-party logistics company (4PL) delegates the delivery task of a client to a third-party logistics company (3PL). Specifically, the contracts are designed in a decentralized system with information symmetry and information asymmetry when 3PL is risk neutral and risk averse. Furthermore, the incentive problems demonstrated that the 3PL is encouraged to make the optimal effort for delivery and the 4PL determines the optimal fixed payment and penalty coefficient. Through analyzing the experimental simulation results, we can find that the contract can effectively mitigate the tardiness risk and the maximum probability of risk occurrence.
Highlights
The huge logistics business brings opportunities as well as challenges to the logistics industry
There are some studies about time reduction for the manufacturing systems (Yamada et al, 2021; Çetinkaya et al, 2021), as an important service criterion for evaluating the delivery performance, few studies have focused on tardiness risk management in the design of logistics service supply chain contract (Heckmann et al, 2015)
We investigate the optimal contracting problem for a fourth party logistics company (4PL) in the presence of the third logistics company (3PL) tardiness risk
Summary
The huge logistics business brings opportunities as well as challenges to the logistics industry. Cainiao provides the client with comprehensive logistics service solutions based on the platform, while the 3PL on it performs the actual logistics operation and delivery. To motivate the 3PL to mitigate the tardiness risk, we endogenize the actual delivery time, and let it relates to 3PL's effort level, i.e., the 3PL can take action to reduce the tardiness risk (Huang et al, 2016). We find that the tardiness risk and 3PL's effort level in the decentralized system under symmetric information (hereafter referred to as symmetric scenario) are equal to that in the centralized system. The effort level of the high type 3PL in the decentralized system under asymmetric information (hereafter referred to as asymmetric scenario) is smaller than that in the centralized system, and the effort level of the low type 3PL is equal in both cases, the tardiness risk is larger in the asymmetric scenario that in the centralized system. The numerical experiments show that comparing the tardiness risk when 3PL is risk neutral with that he is risk averse, it is found that the tardiness risk increases in the degree of the risk aversion
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