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Option contracts: a solution for overloading problems in the delivery service supply chain

Author

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  • Xin Liu

    (University of Science & Technology of China, Hefei, People’s Republic of China)

  • Qinglong Gou

    (University of Science & Technology of China, Hefei, People’s Republic of China
    The University of Texas at Dallas, Richardson, USA)

  • Layth Alwan

    (University of Wisconsin—Milwaukee, Milwaukee, USA)

  • Liang Liang

    (University of Science & Technology of China, Hefei, People’s Republic of China
    Hefei University of Technology, Hefei, People’s Republic of China)

Abstract

Owing to the limited service capacity of express delivery providers, most online retailers have to reject many orders during hot selling seasons. In this paper, we consider an express delivery service supply chain consisting of an express delivery provider and an online retailer whereby the selling season includes both regular periods and online sales periods. Utilizing a modified newsvendor model, we derive the express delivery provider’s optimal capacity decision and find that the overloading problem cannot be avoided because delivery service cannot be inventoried. To solve such a problem, we introduce an option contract to coordinate the supply chain. By allowing the online retailer to book the capacity, the express delivery provider can rent capacity from a third party in advance. Results show this approach can mitigate the problem significantly. We also extend our model to a supply chain consisting of a delivery provider and two retailers.

Suggested Citation

  • Xin Liu & Qinglong Gou & Layth Alwan & Liang Liang, 2016. "Option contracts: a solution for overloading problems in the delivery service supply chain," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 67(2), pages 187-197, February.
    • Handle: RePEc:pal:jorsoc:v:67:y:2016:i:2:p:187-197
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    Citations

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    Cited by:

    1. Hu, Yihong & Qu, Shengnan & Li, Guo & Sethi, Suresh P., 2021. "Power structure and channel integration strategy for online retailers," European Journal of Operational Research, Elsevier, vol. 294(3), pages 951-964.
    2. H. Neil Geismar & Yiwei Huang & Suresh D. Pillai & Chelliah Sriskandarajah & Seokjun Youn, 2020. "Location‐Routing with Conflicting Objectives: Coordinating eBeam Phytosanitary Treatment and Distribution of Mexican Import Commodities," Production and Operations Management, Production and Operations Management Society, vol. 29(6), pages 1506-1531, June.
    3. Ying Wu & Haiyan Li & Qinglong Gou & Jibao Gu, 2017. "Supply chain models with corporate social responsibility," International Journal of Production Research, Taylor & Francis Journals, vol. 55(22), pages 6732-6759, November.
    4. Yuyan Wang & Zhaoqing Yu & Liang Shen & Runjie Fan & Rongyun Tang, 2021. "Decisions and Coordination in E-Commerce Supply Chain under Logistics Outsourcing and Altruistic Preferences," Mathematics, MDPI, vol. 9(3), pages 1-23, January.
    5. Biswas, Indranil & Avittathur, Balram, 2019. "Channel coordination using options contract under simultaneous price and inventory competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 123(C), pages 45-60.
    6. Ying Zhan & Yue Sun & Junfei Xu, 2023. "A Study on the Recycling Classification Behavior of Express Packaging Based on UTAUT under “Dual Carbon” Targets," Sustainability, MDPI, vol. 15(15), pages 1-22, July.
    7. Liu, Shuai & Hua, Guowei & Cheng, T.C.E. & Dong, Jingxin, 2021. "Unmanned vehicle distribution capacity sharing with demand surge under option contracts," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 149(C).
    8. Wei, Jie & Chang, Meijing, 2023. "Are price matching and logistics service enhancement always effective strategies for improving profitability?," European Journal of Operational Research, Elsevier, vol. 307(1), pages 103-115.
    9. Xu, Xiaoping & Zhang, Mian & He, Ping, 2020. "Coordination of a supply chain with online platform considering delivery time decision," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 141(C).
    10. Nana Wan & Li Li & Xiaozhi Wu & Jianchang Fan, 2021. "Coordination of a fresh agricultural product supply chain with option contract under cost and loss disruptions," PLOS ONE, Public Library of Science, vol. 16(6), pages 1-15, June.

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