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Lump‐Sum versus Pay‐As‐You‐Go: The Moderating Effect of Contract Types on the Optimal Logistics Decisions

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  • Thanh Tran
  • Kanghyun Yoon
  • Stefan Genchev

Abstract

When outsourcing their logistics operations to transportation companies, manufacturers/retailers need to design a contract, under which payment can be made either in a lump sum or over time (i.e., per each delivery). This paper investigates how the payment method (i.e., type of contracts) impacts the transporter's delivery schedule by developing an analytical model based on the optimal control and game theories. Our findings show that the transporter's delivery schedule depends on the method of payment and the overall cost of hiring a transporter varies with the types of contracts. We provide theoretical explanations to these findings along with managerial implications. Copyright © 2016 John Wiley & Sons, Ltd.

Suggested Citation

  • Thanh Tran & Kanghyun Yoon & Stefan Genchev, 2017. "Lump‐Sum versus Pay‐As‐You‐Go: The Moderating Effect of Contract Types on the Optimal Logistics Decisions," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 38(4), pages 547-555, June.
    • Handle: RePEc:wly:mgtdec:v:38:y:2017:i:4:p:547-555
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