Mechanism design of incentive-based reverse auctions with loss-averse 3PLs under incomplete attributes.

Xiaohu Qian,Min Huang,Mingqiang Yin,Qingyu Zhang,Xingwei Wang,Baogui Xin

doi:10.1371/journal.pone.0207937

Xiaohu Qian, Min Huang + Show 4 more

Open Access

https://doi.org/10.1371/journal.pone.0207937

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Journal: PloS one	Publication Date: Nov 28, 2018
Citations: 7	License type: CC BY 4.0

Affiliation: Shenzhen University, Northeastern University

Abstract

As a supply chain solution integrator, fourth party logistics (4PL) has become an important focus for improving the operational efficiency of the logistics industry in recent days. This paper addresses the mechanism design problem of the 4PL for selecting a third party logistics (3PL) provider who involves loss-averse behavior to form a longer-term strategic partnership in multi-attribute reverse auctions. Due to fluctuating costs of energy or labor and unintentional delivery failures like traffic jam or technology malfunctions, we consider two incomplete attributes, namely cost uncertainty and delivery risk. Integrating the loss-averse behavior of 3PLs, based on the prospect theory, the bid decision model is constructed to obtain 3PLs’ bidding strategies. The corresponding efficient and optimal scoring auctions that consist of cost-sharing contract and contingent penalty are developed to maximize the ex ante expected profit of the system or the 4PL depending on whether the 4PL is willing to cooperate or not. Theoretical analysis verified by numerical examples illustrates the advantage of the proposed mechanisms. Impacts of model parameters on the 4PL’s decision are also investigated and managerial insights are presented.

Highlights

With the development of economic globalization, logistics becomes a strategic focus of many companies for creating and delivering high value services
It becomes imperative for 3PLs to align with excellent consulting companies, advanced technology firms and other business process management enterprises to provide the cost-effective and sustainable supply chain solutions
Our work contributes to the logistics and supply chain management literature by investigating a 4PL’s mechanism design problem with two incomplete attributes, namely, cost uncertainty and delivery risk, when facing multiple loss-averse 3PLs

Summary

Introduction

With the development of economic globalization, logistics becomes a strategic focus of many companies for creating and delivering high value services. Due to the increasing complexity of supply chain network, third party logistics (3PL) providers who provide a range of logistics activities may not satisfy expectations of their clients [2] It becomes imperative for 3PLs to align with excellent consulting companies, advanced technology firms and other business process management enterprises to provide the cost-effective and sustainable supply chain solutions. Our work contributes to the logistics and supply chain management literature by investigating a 4PL’s mechanism design problem with two incomplete attributes, namely, cost uncertainty and delivery risk, when facing multiple loss-averse 3PLs. Based on the prospect theory, by integrating the contingent penalty and cost-sharing contract with reverse auctions, the novel ESA-CC and OSA-CC are proposed to solve the problem. We believe that our work could improve the operational efficiency of the 4PLs and benefit the logistics industry

Literature review

Conclusions

Taking the first-order partial derivative of