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Due to the increasingly competitive nature of the global market, the capability of controlling delivery time is becoming a significant advantage for enterprises. A novel fourth-party logistics (4PL) network design problem with the objective of minimizing the overall cost under service time constraint and stochastic demand is proposed in the paper. To address this problem, a two-stage nonlinear stochastic programming model is proposed. The topological structure of the 4PL network is decided in the first stage, while the network flows are determined in the second stage. By using auxiliary variables to linearize the service time constraint and by adopting the sample average approximation (SAA) method to handle the stochastic demand, the two-stage nonlinear stochastic programming model is transformed into a mixed integer linear programming (MILP) model. To overcome the difficulties of solving the MILP model caused by a large number of demand scenarios and integer-valued decision variables, a variable separation (VS) strategy is presented to improve the dual decomposition and Lagrangian relaxation (DDLR) approach to propose a VSDDLR-SAA algorithm. Results of the numerical examples and a real-life case illustrate the effectiveness of the proposed model and VSDDLR-SAA algorithm. Comparison analysis of the 4PL network and the supply chain network shows that 4PL can deliver products within the prescribed time at a lower cost by cooperating with third-party logistics providers. [ABSTRACT FROM AUTHOR]

As a supply chain solution integrator, fourth party logistics (4PL) has become an important focus for improving the operational efficiency of the logistics industry in recent days. This paper addresses the mechanism design problem of the 4PL for selecting a third party logistics (3PL) provider who involves loss-averse behavior to form a longer-term strategic partnership in multi-attribute reverse auctions. Due to fluctuating costs of energy or labor and unintentional delivery failures like traffic jam or technology malfunctions, we consider two incomplete attributes, namely cost uncertainty and delivery risk. Integrating the loss-averse behavior of 3PLs, based on the prospect theory, the bid decision model is constructed to obtain 3PLs’ bidding strategies. The corresponding efficient and optimal scoring auctions that consist of cost-sharing contract and contingent penalty are developed to maximize the ex ante expected profit of the system or the 4PL depending on whether the 4PL is willing to cooperate or not. Theoretical analysis verified by numerical examples illustrates the advantage of the proposed mechanisms. Impacts of model parameters on the 4PL’s decision are also investigated and managerial insights are presented. [ABSTRACT FROM AUTHOR]

Disruption risks and quantity discounts have not been explicitly studied in traditional winner determination problems. This paper investigates an innovative winner determination problem with accidental disruptions and quantity discounts for a fourth party logistics provider in a logistics service procurement auction. An effective hybrid strategy that integrates a fortification policy with an outside option policy is developed to mitigate possible disruptions. Integrating the hybrid strategy with a piecewise-linear discount function, a stochastic nonlinear winner determination model is constructed. Utilizing a linearization technique, such a nonlinear winner determination model can be reformulated as a mixed integer linear program. To obtain nearly optimal solutions, a scenario-based approximation method is developed, including a reduced scenario technique and a dual decomposition Lagrangian relaxation technique. Numerical experiments are conducted to illustrate the effectiveness and applicability of the proposed model and method. When the discount parameter decreases or the disruption probability increases, the fortification policy becomes more important for the logistics system. An interesting result indicates that both the auctioneer and bidders may benefit from considering the discount policy. Managerial implications are drawn for fourth party logistics providers to run a reliable logistics system in a cost-effective way. • A nonlinear winner determination (WD) with disruptions and discounts is studied. • Fortification and outside option policies are integrated to address disruptions. • The nonlinear WD is reformulated as a linear one by a superior expression method. • An effective approximation method is developed to obtain near-optimal solutions. • Managerial implications are drawn for 4PLs and 3PLs in the logistics industry. [ABSTRACT FROM AUTHOR]