Service capability procurement decision in logistics service supply chain: a research under demand updating and quality guarantee

Abstract

Though existing researches have already studied on service quality guarantee and demand updating in a supply chain respectively, there is little attention paid to integrated research on service quality guarantee problem with demand updating. This paper aims to investigate the impacts of demand uncertainty revelation and quality guarantee change cost (GCC) on the optimal decisions of logistics service integrator (LSI) and functional logistics service provider (FLSP) in a logistics service supply chain. At the beginning of the first period, the FLSP first guarantees an initial quality level and the LSI procures service capacity from the FLSP based on the demand prediction. Then the demand information is updated after the first-period demand being satisfied, and the LSI and the FLSP make their optimal decisions based on the renewed demand in the next period. Before the second period, uncertainty complete revelation/uncertainty incomplete revelation (UCR/UIR) and GCC/no guarantee change cost (NGCC) may take place, which will affect the decisions the LSI and the FLSP make. Consequently, four situations are considered: (1) UCR and GCC; (2) UIR and GCC; (3) UCR and NGCC; and (4) UIR and NGCC. In each situation, we derive the optimal decisions of the FLSP and the LSI, and a comparison between the first- and second-period decisions in each situation is conducted. Several managerial insights are concluded, and the most important one is that the LSI is supposed to reduce the procurement quantity and the FLSP is supposed to promise a higher quality defect rate in the case of UIR and NGCC. Furthermore, in case of UIR and GCC, we specify a critical condition in which the LSI and the FLSP insist on the initial decisions of the first period. At last, we conducted numerical analysis and gave a practical example of China Yuantong Express Company to support our conclusions.