Multi-period distribution network problems with minimum commitment contracts

Abstract

Companies outsourcing road freight transportation services approach their procurement plan based on a combination of long-term annual contracts with dedicated carriers and spot-markets for immediate loads. This thesis proposes an integrated planning framework considering tactical and operational decisions for logistics services procurement. It allows individual shippers to formulate mid-term contractual agreements with several transporters that could reduce some of the risks encountered in shipper-carrier business relationships, such as unavailability of transportation resources and high-market prices.Contractual agreements are based on minimum commitment (MC) contracts, where the shipper commits to a minimum business volume with certain regularity while carriers offer low and stable rates regardless of market variations. The management problem includes selecting among several contract proposals and deciding the distribution planning for every period along the time horizon.Real-life applications may arise in the context of commercial companies or logistics firms with presence in widespread areas and subcontracting to multiple transportation and logistics service providers. The models are meaningful in dynamic environments, where the contracts represent both an opportunity and risk due to high demand and price variability. In the present work, the tactical planning framework with minimum commitment contracts is studied in the field of e-commerce logistics distribution from the perspective of an e-fulfilment company.The mathematical problem is formulated with mixed-integer linear programs for several variants of MC contracts, in their deterministic and stochastic form. Several algorithmic methods are compared to prove efficiency in finding optimal or applicable solutions to the problem. Numerical tests were performed in random instances with well-defined parameter settings. Results are presented with performance profiles evaluating algorithms in terms of computational time and solution i quality. The analysis considers the economical advantages of approaching capacity planning from a tactical point of view. v 3.

Multi-period distribution networks with purchase commitment contracts

“…On the other hand, the reservation of transportation (truckloads) or service (handling) capacity is not explicitly modeled in the contract. Alternative models taking capacity commitments into account are discussed in Clavijo López (2021).…”

“…Such flexible options become particularly meaningful when the environment presents significant uncertainty with regard to demand or cost parameters. Stochastic models arising in this context are investigated in Clavijo López (2021).…”