Supplier-initiated outsourcing: A methodology to exploit synergy in transportation

Over the last decades, transportation has been evolving from a necessary, though low priority function to an important part of business that can enable companies to attain a competitive edge over their competitors. To cut down transportation costs, shippers often outsource their transportation activities to a logistics service provider of their choice. This paper proposes a new procedure that puts the initiative with the service provider instead: supplier-initiated outsourcing. This procedure is based on both operations research and game theoretical insights. To stress the contrast between the traditional push approach of outsourcing, and the here proposed pull approach where the service provider is the initiator of the shift of logistics activities from the shipper to the logistics service provider, we will refer to this phenomenon as insinking. Insinking has the advantage that the logistics service provider can proactively select a group of shippers with a strong synergy potential. Moreover, these synergies can be allocated to the participating shippers in a fair and sustainable way by means of a so-called Shapley Monotonic Path of customized tariffs. Insinking is illustrated by means of a practical example based on data from the Dutch grocery transportation sector. (C) 2010 Elsevier B.V. All rights reserved.