Selection of third-party service contracts for chemical logistics

Logistics costs in the chemical and related industries are among the highest in asset-intensive supply chains. Having managed the intraplant logistics well for years, companies are now looking for ways to lower the costs of enterprise-wide logistics by increasingly outsourcing a variety of logistics services to third-party logistics (3PL) firms globally. This paper presents a systematic framework for managing chemical logistics in an integrated manner. It presents a novel approach to represent logistics tasks in terms of recipes and recipe superstructures. Using this representation, it develops a mixed-integer linear programming formulation to fulfill the logistics needs of a global enterprise in terms of 3PL contracts and in-house execution. The goal is to obtain the contracts, and thus the 3PLs, that serve the total needs of a company in an integrated manner and with the minimum cost. Several industry-based examples show the utility of our approach.