Coordinating a supply chain with transport service providers

Abstract

Most business-to-business transactions use external transport service providers (i.e. carriers) to improve supply chain performance and customer satisfaction. Supply chain coordination with transport service providers is seldom explored. The current paper adds a carrier to the supplier–retailer channel and analyzes the effect of double marginalization on pricing policies. The paper assumes that market demand is price-sensitive, which is a general decreasing function of the retailer’s selling price. Analysis shows that the joint profit is increased because both the demand is increased and the unit operating cost is reduced as a result of joint coordination. The analytical results are obtained for a specific demand function, and the joint decision policy is coordinated through a nonlinear wholesale and transport pricing scheme. Numerical examples show that the joint coordination including the carrier can significantly improve the performance of the channel compared to the coordination only among the retailer and the supplier.

Keywords:

• supply chain coordination
• carrier
• price-sensitivity
• double marginalization

Acknowledgement

The work described in this paper was supported by National Science Foundation of China under grant 71272085.