Coordinating contracts for fresh product outsourcing logistics channels with power structures

Abstract

We consider an outsourcing logistics channel where a distributor procures a quantity of a fresh product and outsources his logistics operations to a third party logistics service provider (TPLSP), whose logistics service quality and price affect the product sellable quantity and quality on the market, and the distributor׳s order decision, respectively. The distributor sets his order quantity and product selling price. The determinations of logistics service quality and price depend on the channel power structures. We investigate each firm׳s decisions under a traditional unit pricing contract in the three power balance scenarios where the distributor or the TPLSP has the channel power, or they have equal power. The equilibrium results show that the power structures have an important influence on contract design, each firm׳s decision behaviors and channel performances. We further develop two novel incentive mechanisms to coordinate the decentralized channel considering the risk preference of the TPLSP. Computational studies show that the power structures׳ influences increase while the effects of logistics service quality on product quantity and quality increase, and illustrate these incentive mechanisms can achieve full channel coordination and win–win outcomes.