Joint optimal decision of the shared distribution system through revenue-sharing and cooperative investment contracts
| DOI | https://doi.org/10.1108/IMDS-07-2018-0285 |
| Date | 08 April 2019 |
| Published date | 08 April 2019 |
| Pages | 578-612 |
| Author | Qiang Wei,Sheng Li,Xinyu Gou,Baofeng Huo |
| Subject Matter | Information & knowledge management,Information systems,Data management systems,Knowledge management,Knowledge sharing,Management science & operations,Supply chain management,Supply chain information systems,Logistics,Quality management/systems |
Joint optimal decision of the
shared distribution system
through revenue-sharing and
cooperative investment contracts
Qiang Wei
School of Statistics,
Southwestern University of Finance and Economics, Chengdu, China
Sheng Li
School of Statistics,
Southwestern University of Finance and Economics, Chengdu, China and
School of Management, Chengdu University of Traditional Chinese Medicine,
Chengdu, China
Xinyu Gou
School of Business Administration,
Southwestern University of Finance and Economics, Chengdu, China, and
Baofeng Huo
College of Management and Economics, Tianjin University,
Tianjin, China
Abstract
Purpose –The rapid development of e-commerce has caused not only explosive growth of the express
delivery industry, but also ever-greater operational pressures. Models from the sharing economy may provide
new ideas for operational improvement. The purpose of this paper is to consider an optimization method that
reduces costs and increases efficiency. The proposed method enables a shared distribution system based on
revenue-sharing and cooperative investment contracts.
Design/methodology/approach –The authors design a two-ec helon supply chain (SC) of t he shared
distribution system wi th one shared distribution co mpany and Nexpress companies. In this SC, the express
companies provide only inter-city transportation, and they outsource internal-city transportation
to a shared distributio n company. This distrib ution system differs f rom that of the traditio nal express
delivery industry. The traditional system of d elivery requires larg e numbers of empty trips (w ith no
load to deliver), becaus e the operating mode of urban distributio n has been the franchise. To offer greater
efficiency and perfor mance, the authors int roduce the sharing eco nomy mode of express del ivery. The
authors examine the p otential of a joint opt imal decision-maki ng strategy that involv es revenue-sharin g
and cooperative inve stment contracts bas ed on an order flow propo rtion (OFP) and a revenu e-sharing
factor (RSF ). In this shared distrib ution system, the mos t important innovati on is that all of the
express companies join tly invest in and establi sh a shared distribut ion company based on OFP or
RSF principles.
Findings –The profitability of an SC with revenue-sharing contracts based on an OFP system is much
higher than that of a decentralized SC, and it is very close to the profitability of a centralized SC. In SCs with
revenue-sharing contracts that are based on RSFs, there are many possible combinations of RSFs that can
increase the overall profitability. The analyses indicate that the OFP system offers the best solution in
designing revenue-sharing contracts based on RSFs.
Practical implications –This study indicates that revenue-sharing contracts based on both OFP and RSF
principles can increase overall SC returns by 0.21 to 0.44 percent. In sum total, this improvement could mean a
0.84 to 1.76bn Yuan increase in revenues for the 400+bn-Yuan express delivery industry.
Industrial Management & Data
Systems
Vol. 119 No. 3, 2019
pp. 578-612
© Emerald PublishingLimited
0263-5577
DOI 10.1108/IMDS-07-2018-0285
Received 5 July 2018
Revised 19 September 2018
Accepted 14 October 2018
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0263-5577.htm
This research was supported by Fundamental Research Funds for the Central Universities
(JBK1507105) and National Natural Science Foundation of China (#71525005).
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IMDS
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Originality/value –The authors find that a combination of equity investment and SC coordination
contracts makes the cooperation between SC members much more stable. Through this kind of shared
distribution system, the scale of economy can further reduce the costs and increase the efficiency of the
express delivery industry.
Keywords Supply chain coordination, Cooperative investment, OFP, Revenue-sharing, RSF,
Shared distribution system
Paper type Research paper
Nomenclature
Introduction of the symbols
dThe demand of the whole express
delivery industry
p
i
The unit service price charged by
express company ito the market
consumers
q
i
The quantity of orders from the
market consumers to express
company i
αThe price elasticity
βThe cross-price sensitivity
λ
i
The market share of express
company i
wThe shared distribution’sunitservice
price of the shared distribution
company to the express company
cThe shared distribution’sunit
service costof the shared distribution
company
eThe unit of non-scale economic cost
c
i
The unit service cost of the express
company i
qi
Pn
j¼1qj
The order flow proportion (OFP) of
express company i
g
i
The revenue-sharing factor (RSF) of
express company i
π
i
The revenue of express company i
π
s
The revenue of the shared
distribution company
pc
sc The total revenue of the centralized SC
pd
sc The total revenue of the
decentralized SC
prf
sc The total revenue of the SC with a
revenue-sharing contract based on
the OFP
prr
sc The total revenue of the SC with a
revenue-sharing contract based on
the RSF
1. Introduction
The rapid development of e-commerce is generating explosive growth of the express
delivery industry in China. The size of China’s e-commerce market has grown from
1,863.6bn Yuan in 2013 to 7,180bn Yuan in 2017. In 2006, the first statistical survey of the
express delivery industry showed that it completed business transactions involving about
1.06bn pieces, and realized a total business revenue of 29.97bn Yuan. By 2017 (after ten more
years of growth), the annual total of business transactions had reached 40.06bn pieces, and
the total business income was 495.71bn Yuan. This means that the number of business
transactions grew 40 times greater and the business income grew 17 times more within ten
years. The express delivery industry is therefore a “dark horse”of rapid growth in the
Chinese economy. Going forward, it can be expected that this industry will continue to
increase its average annual business transactions by about 10bn more pieces per year, and
to expand its annual business income by an average of about 100bn Yuan each year.
As the scale of e-commerce transactions continues to increase, the number of orders that
express companies need to process every day is also rapidly increasing. However, the ever-
higher operational costs (such as labor expenses) show that the express delivery industry is
a labor-intensive business that faces increasing cost pressures. For this reason, many of the
express companies that focus on e-commerce have begun to seek breakthrough strategies
involving both technological and model (or organizational) innovations. In terms of
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Revenue-
sharing and
cooperative
investment
technological innovations, new technologies such as intelligent storage, drones, driverless
vehicles, or artificial intelligence, continue to emerge. In terms of model innovation,
drop-and-hook transport, car-free carriers, new kinds of retail outlets and shared
distribution systems have become popular modes of business organization. Many domestic
cities such as Beijing, Chongqing or Chengdu have begun to actively promote the piloting of
shared distribution models, or have introduced plans for implementing such systems. As the
sharing economy develops, systems involving shared short-term rentals, shared bicycles,
shared cars or shared distribution may provide practical, feasible solutions for optimizing
the prosperity of the e-commerce-related express delivery industry.
At present, the vast majority of domestic express companies, including firms such as
ZTO Express (NYSE: ZTO), YTO Express (600233), STO Express (002468) and YUNDA
Express (002120), still conduct independent operations for inter-provincial transportation,
and they outsource the inter-city transportation and urban distribution to their franchisees.
Only a few express companies, such as SF-Express (002352) and Deppon (603056), have
adopted completely autonomous approaches in developing their own express businesses.
As the volume of orders involving inter-city transportation is high, and as the volume of
urban distribution is much lower than that of inter-provincial transportation, traditional
express delivery in urban areas involves large numbers of “empty driving”trips.
Such inefficiency arises because the main operating mode of urban distribution is the
franchise. Obviously, this mode of operation involves diseconomies of scale, and there is
huge potential for optimization and improvement.
To find better solutions, we introduce the sharing economy mode for the express delivery
industry, and we design a new two-echelon SC for the shared distribution system. Our model
involves one shared distribution company and Nexpress companies, in which the express
companies conduct only the inter-city transportation, and they outsource the urban
(internal-city) transportation to a shared distribution company (rather than a traditional
express delivery service). We then examine the joint optimal decision-making strategy for
designing the revenue-sharing and cooperative investment contracts. We assess strategies
based on the order flow proportion (OFP) and the revenue-sharing factor (RSF). In this type
of shared distribution system, the most important innovation is that all of the express
companies jointly invest in and establish their operations based on assessments of the OFP
or the RSF, instead of buying third-party services. In our case study and numerical analysis,
we use public data from several express companies to analyze and compare the
performances of two types of revenue-sharing SCs (one based on the OFP and the other on
the RSF) and of centralized or decentralized SCs. At the same time, we outline the feasible
solution spaces for various combinations of RSFs.
This study makes several theoretical and managerial contributions. First, unlike
previous studies that have mainly focused on dual-channel systems, this study examines the
1-N Omni-channel SC, which bears a much closer resemblance to the real business
environment. Second, our numerical analysis uses real business data instead of the
hypothetical data that have been commonly used in previous studies. Our use of real data
means that our research results more truly reflect the model’s actual application value.
Third, we propose a portfolio contract that involves both revenue-sharing and joint
investment, instead of a traditional single coordination contract, and we include an OFP
cooperation mechanism. Fourth, we introduce the sharing economy concept into the
logistics express industry, and provide an approach to organizational transformation that is
suitable for enabling greater efficiency and effectiveness in this industry.
The study proceeds as follows. Section 2 presents the literature review, and then the
research model and hypotheses are explained in Section 3. Section 4 shows the benchmark
model that includes centralized and decentralized SCs, and Section 5 evaluates SCs with
revenue-sharing contracts based on the OFP and the RSF. Section 6 presents the case study
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