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The impact of different contract structures on IT investment in logistics outsourcing

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  • Gong, Fengmei
  • Kung, David S.
  • Zeng, Tong

Abstract

The information technology (IT) capabilities of third-party logistics (3PL) providers are important for manufacturers because they enable manufacturers to optimize their operations. However, there exists an “IT gap,” or discrepancy between manufacturers' expectations and their satisfaction with the IT capabilities of 3PL providers. Previous studies suggest that 3PL providers' IT investments are critical and necessary for developing superior IT capabilities, which, in turn, contribute to firm performance. To motivate 3PL providers to invest in developing their IT capabilities and, thus, reduce the “IT gap,” we analyze a 3PL provider's IT investment, as well as its impact on supply chain profit, under four logistics outsourcing contract structures: a fixed-price contract, a contract contingent on the on-time delivery rate, a profit-sharing contract, and a revenue-sharing contract. We find that the 3PL provider's IT investment is higher under the contingent and profit-sharing contract structures than it is under the other two contract structures. The 3PL provider's IT investment under the contingent contract is no more than that of the profit-sharing contract. Additionally, we find that the contingent and profit-sharing contracts result in a higher profit within the supply chain than the other two contract structures do, and that the supply chain profits under contingent and profit-sharing contracts are dependent on the 3PL provider's IT investment. The results provide 3PL buyers and providers guidance in terms of using contract structures to motivate IT investment in logistics outsourcing.

Suggested Citation

  • Gong, Fengmei & Kung, David S. & Zeng, Tong, 2018. "The impact of different contract structures on IT investment in logistics outsourcing," International Journal of Production Economics, Elsevier, vol. 195(C), pages 158-167.
    • Handle: RePEc:eee:proeco:v:195:y:2018:i:c:p:158-167
    DOI: 10.1016/j.ijpe.2017.10.009
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    Citations

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    Cited by:

    1. Hongyan Wang & Min Huang & Hongfeng Wang, 2022. "Fourth-Party Logistics Environmental Compliance Management: Investment and Logistics Audit," Sustainability, MDPI, vol. 14(16), pages 1-20, August.
    2. Saidi, Samir & Mani, Venkatesh & Mefteh, Haifa & Shahbaz, Muhammad & Akhtar, Pervaiz, 2020. "Dynamic linkages between transport, logistics, foreign direct Investment, and economic growth: Empirical evidence from developing countries," Transportation Research Part A: Policy and Practice, Elsevier, vol. 141(C), pages 277-293.
    3. Joash Mageto, 2022. "Current and Future Trends of Information Technology and Sustainability in Logistics Outsourcing," Sustainability, MDPI, vol. 14(13), pages 1-27, June.
    4. Debabrata Das & Sameer Kumar & Nirmal Baran Hui & Vipul Jain & Charu Chandra, 2023. "Pricing and revenue-based outsourcing strategies in a multi-echelon lot-sizing model under insufficient production capacity," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 22(6), pages 514-530, December.
    5. Yaoguang Zhong & Fangfang Guo & Zhiqiang Wang & Huajun Tang, 2019. "Coordination Analysis of Revenue Sharing in E-Commerce Logistics Service Supply Chain With Cooperative Distribution," SAGE Open, , vol. 9(3), pages 21582440198, August.
    6. Granillo Macías, Rafael & González Hernández, Isidro J., 2021. "Selección y evaluación de proveedores de logística externa en la cadena de suministro: una revisión sistemática," Cuadernos de Gestión, Universidad del País Vasco - Instituto de Economía Aplicada a la Empresa (IEAE).
    7. Md. Rokonuzzaman, 2018. "The Integration of Extended Supply Chain with Sales and Operation Planning: A Conceptual Framework," Logistics, MDPI, vol. 2(2), pages 1-21, March.
    8. Nafiseh Fallahi & Ashkan Hafezalkotob & Sadigh Raissi & Vahidreza Ghezavati, 2023. "Cooperation and coopetition among retailers-third party logistics providers alliances under different risk behaviors, uncertainty demand and environmental considerations," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(6), pages 5597-5633, June.

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