Optimal Global Liner Service Procurement by Utilizing Liner Service Schedules

• Published in: Production and operations management Vol. 30; no. 3; pp. 703 - 714
• Main Authors: Lee, Chung‐Yee, Shu, Shengnan, Xu, Zhou
• Format: Journal Article
• Language: English
• Published: Los Angeles, CA SAGE Publications 01.03.2021; Wiley Subscription Services, Inc; Blackwell Publishers Inc
• Subjects: (mixed) integer linear programming; Alliances; Analysis; Contract manufacturing; demand uncertainty; liner service procurement; Logistics; Ocean traffic; Optimization; Purchasing; robust optimization; service schedules; Shipping industry; service schedules; liner service procurement; demand uncertainty; (mixed) integer linear programming; robust optimization
• ISSN: 1059-1478; 1937-5956
• DOI: 10.1111/poms.13311

For global shippers (i.e., multinational manufacturers or retailers), strategic sourcing of container liner shipping services from ocean carriers is an important element of successful global supply chain management. We study how to utilize information about different ocean carriers’ liner service schedules so that shippers can optimize their sourcing decisions over the selection of carriers to transport container cargoes around the world through multiple shipping lanes. We first introduce a deterministic optimization problem, where cargo demands are given in advance and in which inventory holding costs are included to capture the impacts of liner service schedules on the total operating cost. We formulate the deterministic optimization problem as a mixed integer linear program, which can be simplified by exploiting a totally unimodular property, and can thus be solved directly by a general optimization solver. To further capture the impact of liner service schedules on shippers’ resilience to the uncertainties in cargo demands, we then introduce a two‐stage robust optimization counterpart of the deterministic problem based on a probability‐free demand uncertainty set. As the two‐stage robust optimization problem is challenging to solve, we derive some novel reformulations that can enable us to develop an effective solution method. By exploiting the information about liner service schedules, we show how our proposed models and solution method can help shippers to optimize their liner service procurement decisions.