An order allocation model in multi-period logistics service supply chain based on cumulative prospect theory and capacity matching constraint

Abstract

By considering a two-echelon supply chain that consists of a logistics service integrator (LSI) and several functional logistics service provider (FLSP), this study builds a comprehensive subjective utility (CSU) function of FLSP in multiperiod based on cumulative prospect theory and establishes an order allocation model in multi-period logistics service supply chain. This model considers three goals: to minimise the cost of LSI, to maximise the satisfaction of the FLSP and to maximise the capacity matching degree among different logistics capacities. This study uses an improved technique for order performance by similarity to ideal solution to obtain the optimal solution. A numerical example is given by software MATLAB 7.8. The effects of the behavioural parameters of FLSPs on order allocation are also discussed. When the LSI allocates orders, the FLSP, who has larger ratio of loss to gain range by the sensitivity decreasing rate, should be selected to obtain a large value of CSU. No obvious rule is found for the influence of the loss aversion coefficient of FLSPs on the CSU of FLSPs in a multi-period.

Service supply chain management: a behavioural operations perspective

“…As such, it is important to consider the risk attitude of decision makers in the supply chain of service sectors with higher uncertainty, such as the logistics and financial industries (Sawik, 2016;Choi, 2016;Chen, 2017). (Hosseini and Verma, 2017), conditional value-at-risk method (Ye et al, 2017), mean variance model (Cui et al, 2016), risk attitude and supplier selection (Harrison et al, 2009), risk attitude and quality control and cumulative prospect theory and order allocation (Liu, Ge and Yang, 2013;Liu et al, 2014)…”

“…Prospect theory is also one behavioural factor that garnered the attention of scholars in the early time. Liu, Liu and Ge (2013) and Liu et al (2014) introduced prospect theory in the research on LSSC, considering the impacts of reference point, loss aversion, as well as the risk attitude towards gains and losses, before revising the objective function of order allocation.…”

“…Different measurement methods of risk: value-at-risk method (Hosseini and Verma, 2017), conditional value-at-risk method (Ye et al, 2017), mean variance model (Cui et al, 2016), risk attitude and supplier selection (Harrison et al, 2009), risk attitude and quality control and cumulative prospect theory and order allocation (Liu, Ge and Yang, 2013;Liu et al, 2014)…”

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Channel Coordination in Logistics Service Supply Chain considering Fairness

“…Logistics service supply chain (LSSC) refers to a logistics service network structure which is connected from the front-end functional logistics service providers (FLSPs) to the logistics service integrators (LSIs) and to customers (manufacturers or retailers) [1,2]. It is an important branch of service supply chain focused on the cooperation of logistics service capacities [3,4].…”