3PL Supply Chain Finance: Competition and Risk Analysis

Project: Research

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Since the last decade, we have witnessed that the third party logistics (3PL) companies emerged from the Pearl River Delta (PRD) and became one of noticeable players in the global supply chain. These companies, either started as a forwarder or customs clearance service provider, quickly expended their services to more sophisticated and value-added supply chain operations such as production and retailing fulfillment, just-in-time kitto- go delivery, emergency fulfillment, financial settlement and supply chain financing. Moreover, since the 3PL knows the supply chain and owns goods in the logistics-life cycle, we have also observed that the bank backs 3PL businesses.A supplier, 3PL and buyer consist of a supply chain. In addition to well-studied operations such as warehousing and distribution, the 3PL finances the purchase cost to the buyer or the production cost to the supplier. We denote the former and latter as a forward and backward financing, respectively. The 3PL also provides the emergency fulfillment services. We propose to develop a game model to investigate the dynamics and competitive behavior of these three players. We assume that the supplier is the leader for the supply chain where the supplier determines the wholesale price, and the buyer and 3PL are followers and compete in inventories. The wholesale price competition is a Stackelberg game with the supplier as the leader; and the inventory competition between the buyer and 3PL is a static game. We would like to investigate if a competitive solution can be developed for the above-mentioned two-stage game. This competitive solution provides us answers to the supply chain dynamics for the forward and backward financing models. We intend to study how to measure the exchange-rate risk over the supply chain decisions, and how a financial instrument known as Non- Deliverable Forward (NDF) affects the supply chain dynamics.The incorporation of the inventory and the wholesale price competition with three types of supply chain players leads a challenging multi-stage game apart from the dynamics introduced by the supply chain financing. We expect that this research will generate new analytical models and results as well as high quality publications. We also expect that our research will lead to effective methods that provide strategic and operational benefits to the logistics service companies. We believe that this study is important not only for the PRD companies, but also for those global companies who seek business expansions and outsourcing opportunities in the PRD.


Project number9041732
Grant typeGRF
Effective start/end date1/09/0930/09/13