Quality risk in logistics outsourcing: A fourth party logistics perspective

Min Huang, Jun Tu, Xiuli Chao and Delong Jin

European Journal of Operational Research, 2019, vol. 276, issue 3, 855-879

Abstract: We investigate an outsourcing logistics risk management problem under a principal-agency framework. A fourth-party logistics firm (4PL) deputes a third-party logistics firm (3PL) to complete the tasks received from clients. The 4PL cannot observe the effort/investment level of the 3PL on the delivery quality but only on the ex post delivery quality. Thus, a contract based on delivery quality is proposed to stimulate the 3PL to exert optimal effort/investment for the outsourced task. First, we derive the optimal contract contents both in symmetric and asymmetric information settings and show that in the asymmetric information setting, although a menu of contracts can induce the 3PL to tell the truth, asymmetric efficiency information can lead to a drop in delivery quality as well as in system-wide welfare. Then, to deal with this issue in the asymmetric information setting, we introduce two contracts: noncooperative bargaining and cooperative bargaining contracts. We find that the cooperative bargaining contract can ensure the 3PL exerts the maximum effort/investment level and achieves high-quality delivery and system-wide welfare. Finally, we extend our study to a case with discrete efficiency distribution and analyze various types of contracts as well as their implications.

Keywords: Logistics; Quality risk; Third party logistics; Fourth party logistics; Contract design (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221719300840
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:276:y:2019:i:3:p:855-879

DOI: 10.1016/j.ejor.2019.01.049

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().