On the value of holistic decision-making and contracted logistics procurement in complex supply chains

Lyu, Jing and Arslan, Alp and Lulli, Guglielmo (2025) On the value of holistic decision-making and contracted logistics procurement in complex supply chains. In: EURO Working Group on Vehicle Routing and Logistics Optimization, 2025-06-16 - 2025-06-19. (In Press)

Abstract

This study investigates the effects of decision-making process and logistics procurement strategies on supply chain. Strategies are categorized based on whether decision-making among different departments is holistic or decentralized, and whether logistics are outsourced through spot market transactions or long-term contracted relationships. We proposed four possible strategies: Traditional Supply Chain (decentralized decision-making with spot market procurement), Integrated Supply Chain (holistic decision-making with spot market procurement), Proactive Supply Chain (decentralized decision-making with contracted procurement), and Integrated & Proactive Supply Chain (holistic decision-making with contracted procurement). The study introduces a multi-attribute, multi-period consistent inventory routing problem (ConIRP) to quantify the potential benefits on economic aspect of these strategies. Firstly, ConIRP analyze the different and often times conflicting objectives of inventory and logistics departments by examining the trade-offs between inventory costs and cost-efficient logistics planning. Secondly, ConIRP explores contracted route planning, enabling supply chains to outsource predetermined routes to carriers at typically discounted fees, with determined service frequency. The analysis uses data from a European car manufacturer’s supply chain, specifically focusing on reusable container movements between production facilities and suppliers. Results indicate that (i) all Supply Chain configurations perform on par with each other in inventory metrics, but logistics expenses vary significantly; (ii) Integrated and/or Proactive Supply Chain reduces the logistics cost by up 77%, notably the holistic decision making and long term contractual planning create synergy when deployed jointly; (iii) the size of the supply chain network, number of facilities, discount factor, consolidation possibilities, and routing flexibility are critical parameters influencing the magnitude of the saving potentials with the Integrated & Proactive Supply Chain.