Price and capacity strategies in the express delivery supply chain: advanced payment, penalty or time insurance contracts

Abstract

In the Business to Consumer (B2C) environment, it is important to alleviate the mismatch between delivery capacity and demand in the express delivery supply chain. To do this, we propose three contracts to improve supply chain performance: the advanced payment contract, penalty contract, and time insurance contract. To assess these contracts, we considered the supply chain of one e-retailer and one express delivery provider. We discussed which contract is better for the supply chain partners when the three contracts can coordinate the supply chain. We found that when its unit cost of delayed orders is lower, the e-retailer will choose the advance payment contract among three contracts. When its unit cost of delayed orders is medium, the e-retailer will opt for the time insurance contract. When its unit cost of delayed orders is high, the e-retailer will not choose the advanced payment contract. In this case, whether the e-retailer chooses the time insurance contract and penalty contract depends on the value of wholesale price.