Managing third-party logistics under uncertainty: A decision scheme and managerial implications

Abstract

Airfreight forwarders design shipment plans to ensure that client shipments are delivered on time and at a low cost. Reliability of a shipment—the probability of delivering a shipment on time—is a critical consideration in shipment planning. We propose a three-phase decision scheme for forwarders to develop, evaluate, and revise their shipment plans, such that plans can meet reliability targets at a reasonably low cost. In phase one, a tentative shipment plan is determined using a Tabu algorithm. In phase two, the plan's reliability is examined by a simulation model. In phase three, we design specific actions to revise an unsatisfactory plan. To explore managerial implications of uncertainty in third-party logistics, we solved many cases of shipment plan using real-life air cargo routes and data. It is observed that consolidation—while saves cost—can have undesirable impact on shipment reliability as it allows uncertain elements of one shipment to affect another. Integration, although not as cost-efficient, enhances shipment reliability. Compared to results obtained from simulating industry practice, the proposed scheme is able to perform consistently better. Many issues of practical concern are discussed.