The role of an integrated logistics and procurement service offered by a 3PL firm in supply chain

What is it about?

As an integrated part in supply chain, third-party logistics (3PL) has intrinsic connections with upstream manufacturer and downstream retailer. Using a Stackelberg game model consisting of a manufacturer, a retailer and a 3PL to explicitly capture the interaction of firms' operations decisions, this paper attempts to better understand the role of integrated logistics and procurement service (ILPS) provided by a 3PL firm in supply chain management. Compared with a supply chain without ILPS, a Pareto region, in which all the supply chain members benefit from working with a 3PL firm offering ILPS, is disclosed. We also show that the Pareto region is more likely to occur with higher demand uncertainty. Finally, we reveal that the manufacturer obtains the highest profit in the Pareto region, and that the retailer can improve his profit share as the standard deviation of demand increases.

Featured Image