Contracts design for serial delivery with connecting time spot: From a perspective of fourth party logistics

Abstract

For a serial delivery system, the latter 3PL needs to be prepared at the transshipment node in advance to reduce the total delivery time. In this paper, we propose the concept of Connecting Time Spot (CTS) to help 4PL schedule the latter 3PL when to wait at the transshipment node. We study a serial delivery system with a 4PL and two 3PLs, where 4PL designs optimal contracts with two types of CTS (GCTS is derived by system parameter and DCTS is determined by 4PL’s optimization) to induce 3PLs to exert the optimal effort levels. We analyze the effects of CTS on the system profit in the centralized system. For the decentralized system, we particularly investigate the optimal contracts in three penalty modes which are according to the occupancy of the warehouses. The results show that CTS can avoid 3PLs’ idle resources and enhance the system profit for serial delivery both in the centralized system and the decentralized system. Compared with GCTS, DCTS has a better performance in enhancing the system profits. Also, the optimal incentive contracts achieve Pareto improvement for system profits. Interestingly, one 3PL’s delivery penalty mode will not affect the other 3PL’s optimal contracts.