Describe the composition of price model and discuss whether or not that model could be used in
everyday 3PL partnerships.
The composition of the Price Model
Price model composition highlights the amount a service provider will be paid
and under which circumstances. 3PL is of one the most used model in the supply chain that helps
to reach an agreement. 3PL services ensure mutual agreement concerning components and price
levels by using pre-relationship negotiations and influences the whole set-up. This includes the
property solution levels, dedicated shared asset usage, and the service provider’s initial
investment. The agreement allows the implementation of the price model. Thus, the price model
provides the mechanism for governance and influences the behaviors of customer and service
and service provider. Besides, the composition of a price model allows service providers to
maximize profits even under penalties and bonus. Therefore, the price model provides the
composition, governance, structure, context, and the outcome of the system and how service
providers can maximize decision making and profits. There seems to be no specific structure of a
price model, but service providers can use the 3PL model to determine the best pricing model
such as cost-based pricing model (Lukassen & Wallenburg, 2010).
COMPOSITION OF PRICE MODEL 2
The pricing model can be used in 3PL partnership logistics to determine the best
pricing structure, governance, context, and the outcome. However, due to lack of collective
agreement about which is the best pricing model to apply, service providers should effectively
evaluate cost-based rates, compensation-based rates and time-based compensation for access and
rental relationships. Therefore, for a pricing model to effectively be used in 3PL partnerships,
services need input from all partners and some substitutable inputs. Thus, service providers
should use less of outcome-based compensation than cost-based pricing in order to manage
customers’ outbound logistics (Lukassen & Wallenburg, 2010). Since most customers do not
price sensitive, 3PL partnerships must ensure proper communication, paperwork, planning, and
coordination for an adequate and complete process. This will help them to solve logistics
challenges by figuring out the best methods of transportation and focusing on core business
abilities and maximizing profits through flexibility and scalability.
COMPOSITION OF PRICE MODEL 3
References
Lukassen, P. J., & Wallenburg, C. M. (2010). Pricing third-party logistics services: integrating
insights from the logistics and industrial services literature. Transportation Journal, 24-
43.
