Managing third-party logistics under uncertainty: A decision scheme and managerial implications

Airfreight forwarders design shipment plans to ensure that client shipments are delivered on time and at a low cost. Reliability of a shipment - the probability of delivering a shipment on time - is a critical consideration in shipment planning. We propose a three-phase decision scheme for forwarders to develop, evaluate, and revise their shipment plans, such that plans can meet reliability targets at a reasonably low cost. In phase one, a tentative shipment plan is determined using a Tabu algorithm. In phase two, the plan's reliability is examined by a simulation model. In phase three, we design specific actions to revise an unsatisfactory plan. To explore managerial implications of uncertainty in third-party logistics, we solved many cases of shipment plan using real-life air cargo routes and data. It is observed that consolidation - while saves cost - can have undesirable impact on shipment reliability as it allows uncertain elements of one shipment to affect another. Integration, although not as cost-efficient, enhances shipment reliability. Compared to results obtained from simulating industry practice, the proposed scheme is able to perform consistently better. Many issues of practical concern are discussed.