An evaluation of freight consolidation policies in global third party logistics

The collaborative integration with global third party logistics (3PL) to execute physical distribution dictates the success of any global supply chain (GSC) application. In an overall effort to minimize the system-wide cost, global 3PL can apply various consolidation policies to maximize the utilization of expensive transportation such as aircraft. Freight consolidation has received considerable attention in recent years, but the application of consolidation policies by integrated global 3PL under an e-business model is rarely discussed. The emergence of mass customization has challenged integrated logistics providers to adjust their consolidation policies in order to simultaneously minimize the cost and fulfill the service commitments. This paper examines a special class of freight consolidation at an integrated global logistics company in GSC. A mathematical programming model has been developed to assist the evaluation of consolidation policies. The computational results reveal a substantial cost saving and a service level improvement of about 20% as a consequence of implementing a collaborative consolidation policy.