Operational Risk Control Mechanism and Decision-Making Model for Third Party Logistics

Logistics operation risk is one of the main and internally-controllable risks for a third party logistics service provider (3PL). According to the identified relationships among objective risk, estimated risk, risk preference and risk control, this paper presents a mechanism to control logistics operation risk and a control model for 3PL. The existence of the optimal solution is verified. Finally, the paper suggests an optimal risk control strategy, i.e., as long as the risk declining rate is less than the negative ratio of marginal control cost and marginal risk loss, the logistics operation manager should control risk actively. The results are important for 3PL to control its operation risks.