Mixing contract-based and on-demand sourcing of transportation services for improved supply chain performance under supply uncertainties

Abstract

With increasing demand volatility, companies must develop flexibility at multiple supply-chain stages, including in transportation. One method for doing this is combining long-term contract carriers with on-demand sourcing of transportation capacity from the spot market. In line with the growth of online riding services, on-demand sourcing for trucking services is now emerging. This study investigates mixing contract-based and on-demand sourcing for transportation services in the currently uncertain transportation supply. We describe the uncertainty stemming from the contract market’s rejection rate, the variability in terms of truck availability and response times, and the prices offered on the spot market. The situation is modelled using a discrete-event simulation approach to capture the complexity of the system. Our experiment indicates that greater reliance on the spot market could result in a better fill rate but lower delivery punctuality and higher transportation costs. The decision to mix contract-based and on-demand sourcing should consider uncertainty factors on the supply side, including (i) the rejection rate from contract-based carriers, (ii) the availability and waiting times for services from the spot market, and (iii) price uncertainty in the spot market.

KEYWORDS:

• Contract sourcing
• on-demand sourcing
• spot market
• transportation
• uncertainties

Acknowledgment

This work was supported by the Ministry of Research, Technology, and Higher Education of the Republic of Indonesia under PMDSU Grant (number: 5/E1/KP.PTNBH/2019).

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was supported by the Directorate General of Higher Education, Ministry of Research, Technology, and Higher Education, Republic of Indonesia under PMDSU Grant (number: 5/E1/KP.PTNBH/2019).

Notes on contributors

Lala Ayu Kantari

Lala Ayu Kantari is a Doctoral Candidate in Industrial and Systems Engineering, Institut Teknologi Sepuluh Nopember, Surabaya, Indonesia. She earned bachelor’s degree in Industrial Engineering from Institut Teknologi Sepuluh Nopember. Her research interest includes simulation, supply chain management, and logistics.

I Nyoman Pujawan

I Nyoman Pujawan is Professor of Supply Chain Engineering at the Department of Industrial and Systems Engineering, Institut Teknologi Sepuluh Nopember (ITS), Surabaya, Indonesia. He was a Lecturer in Operations Management in Manchester Business School, The University of Manchester, UK in 2003–2004. His papers have appeared in many international journals including the European Journal of Operational Research, International Journal of Production Economics, International Journal of Production Research, Production Planning and Control, International Journal of Physical Distribution and Logistics Management, Supply Chain Management: An International Journal, International Journal of Logistics Research and Applications, Business Process Management Journal, among others. He is a Board Executive Member of the Asia Pacific Industrial Engineering and Management Systems Society (APIEMS) and the International Federation of Logistics and SCM Systems (IFLS). Professor Pujawan worked in industry before moving to the academia. While his academic background is very strong, he is equally well experienced in handling industry problems. He is an active consultant for various supply chain and logistics related industry problems (has involved in over 40 consulting projects). He is a frequent invited speaker for both academic as well as industry forum, nationally as well as internationally.

Niniet Indah Arvitrida

Niniet Indah Arvitrida is a lecturer in Department of Industrial and Systems Engineering, Institut Teknologi Sepuluh Nopember, Surabaya, Indonesia. She holds a PhD in Operational Research from Loughborough University, UK. She also has a Master of Engineering in Supply Chain Management and Bachelor of Engineering in Industrial Engineering, both obtained with honours (cum laude) in ITS, Indonesia. Niniet is an expert in developing quantitative modelling approaches, primarily in logistics and supply chain management context. Her research interests are simulation modelling (agent-based modelling, system dynamics, and discrete-event simulation) and supply chain management.

Per Hilletofth

Per Hilletofth (PhD) is a Professor of Operations and Supply Chain Management at University of Gävle in Sweden. His research focuses on operations strategy, manufacturing location, supply chain design, new product development, and demand and supply integration. He has editorial assignments in several international journals.