Modeling logistics service providers in a non-cooperative supply chain

• We develop a non-cooperative multi-layer supply chain model.
• The model helps make decisions when logistics activities are provided by Logistics Service Providers.
• We use a variational inequality approach to formulate and solve this problem.

This paper presents a mathematical model for the design of a non-cooperative supply chain where transportation activities are provided by logistics companies. We consider a four-layer network comprised of manufacturers, retailers, customers, and logistics service providers (LSPs). In this problem, manufacturers, retailers, and LSPs do not collaborate or engage in any type of bargaining strategy among one other. Instead, they compete to supply products to customers at demand markets, while each agent seeks to maximize his own profit. LSPs compete among themselves to provide logistics (transportation/warehousing) services to manufacturers. It is considered that manufacturers, LSPs, and retailers collaborate to maximize services. Normally this problem cannot be modeled as an optimization problem, so we use a variational inequality approach to formulate it. To the best of our knowledge, this important problem, which helps evaluate options and make decisions when logistics activities are provided by LSPs, has not been modeled in the literature and this constitutes our main contribution. The model determines the optimal level of production for each manufacturer, the flow of products between manufacturers and retailers, the flow of products to be handled by each logistics service provider and the flow of products between retailers and demand markets in a non-cooperative environment. Numerous experiments are presented and adapted from test examples that are available in the literature, while results and important findings are discussed.