Contract design for tardiness risk management of fourth party logistics

That fourth party logistics entrusts third party logistics to deliver goods with contract has become a common mode in modern logistics industry. However, tardiness risk caused by the uncertain delivery time of the third party logistics restricts the rapid development of the logistics industry. Therefore, to control the tardiness risk of the fourth-party logistics with contract is a key scientific issue. This paper studies the control of tardiness risk in the contract design, gives a contract design mechanism, uses the Requirement Violation Index to measure the risk of tardiness, and designs the optimal contract that minimizes the tardiness risk in the system. In addition, we get the maximum probability of any level of tardiness that may occur under the optimal contract. The simulation results show that the optimal contract can incent the third party logistics to make more effort and minimize the tardiness risk.