Order allocation model in logistics service supply chain with demand updating and inequity aversion: A perspective of two option contracts comparison

Abstract

<p style='text-indent:20px;'>This paper considers an logistics service supply chain consisting of a logistics service integrator (LSI) and a number of functional logistics service providers (FLSPs). In the environment of demand updating, we focus on the inequity aversion among the FLSPs and introduce two option contracts (the reservation option contract and the option guarantee contract), build the multi-objective programming models, to explore effects of the inequity aversion behavior on the order allocation, and whether the two option contracts can mitigate the impact of inequity aversion on order allocation. Three important conclusions are obtained after two option contracts comparisons: first, there is an optimal update time, at which point, the order allocation results reach the optimal value and tend to be stable. Second, two option contracts both can not only increase the total performance of the supply chain, but also mitigate the impact of inequity aversion on the allocation under certain conditions. Third, when demand decreases, the reservation option contract is better than option guarantee contract, in contrast, when demand increases, option guarantee contract is better.</p>