MODELING SUPPLY CONTRACTS TO MANAGE OUTSOURCING RISKS OF LOGISTICS' ACTIVITIES

Winda Narulidea, Sekarsari Utami Wijaya
Logistics Engineering Department, Universitas Internasional Semen Indonesia

In a decentralized supply chain condition, control of supply chain players towards third-party logistics service providers is limited, while the performance of logistics services affect product availability, quality, price and market. Outsourcing decisions on logistics activities are common practice and generally succeed in increasing the performance and efficiency of logistics costs for many companies. The kind of outsourcing could maintain their focus on the core business. On the other hand, these companies also need to keep minimizing distribution costs by managing relationships with third-party service providers to obtain the expected value of excellence in their operational performance. Therefore, in a decentralized supply chain, suitable supply contracts as the coordination mechanism among supply chain players are needed, moreover with the using of logistics outsourcing strategy. The supply contracts need to be designed so that all supply chain players could obtain the expected competitive advantage. In this research, there are revenue and inventory risk sharing contracts and quantity flexibility contracts developed to coordinate the supply chain consisting of manufacturers, retailers and third-party logistics service providers. An incentive and penalty scheme is applied based on the performance of the logistics service provider which affect the level of availability at the retailer, therefore the inventory risks could be allocated to all related players.

Keywords: supply contracts, revenue and inventory-risk sharing contract, quantity flexibility contracts,
logistics outsourcing

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