Economic evaluation of an outsourced fourth-party logistics (4PL) under a flexible production system

Abstract

Competition in the production business is getting harder day by day for the manufacturer and the corresponding retailer of the supply chain. When a supply chain deals with deteriorating products, an efficient production system, and a logistic provider are two important pillars to keep the business profitable. Logistics facility for deteriorating products requires additional attention, especially when deteriorating products require a refrigerate-storage facility. This study investigates the economic evaluation of flexible production and logistics outsourcing for deteriorating products with the help of logistics outsourcing. The retailer outsources logistics facilities through a fourth-party logistics provider. Fourth-party logistics uses reefer shipping to transport deteriorating products for preventing deterioration during transportation. The refrigerant of the shipping container has a random leakage during shipping. In the meantime, the manufacturer uses preservation facility to reduce the random deterioration rate of products. A classical optimization finds the global minimum total cost for a unique solution of decision variables. Results prove that flexible production is very sensitive to machinery systems and fresh products are more cost-effective for transportation than frozen products. The proposed system saves 38.38% of the total cost in comparison with a constant production rate. Sensitivity analysis finds transportation costs of 4PL are the most sensitive parameters of the system.