Service channel choice for supply chain under online marketplace

Abstract

AbstractWe consider a supply chain where a manufacturer directly sells products to end consumers through an online marketplace operated by an e‐tailer, where the e‐tailer is a leader and the manufacturer is a follower. Logistics service is a key influence factor to online marketplace. We present four service channels: (1) E‐channel, the e‐tailer offers the service; (2) E3P‐channel, the e‐tailer outsources the service to a 3PL; (3) M‐channel, the manufacture offers the service; and (4) M3P‐channel, the manufacture outsources the service to a 3PL. This study investigates the optimal decisions and profits for e‐tailer and manufacturer among different service channels, respectively, equilibrium choice of service channel and examines the consistency on choosing the service channel between them. We find that whether the market demand is a log‐separable function form or a linear function form, when the fraction of supply chain revenue sharing is large, E‐channel is the equilibrium choice, otherwise M‐channel is the equilibrium one. Further, we use the sharing fraction threshold gap between e‐tailer and manufacturer to describe the extent of the consistency on choosing the service channel. We find increasing demand sensitivity to service level or decreasing cost sensitivity to service level would enhance the consistency. Moreover, we extend to analysis with linear demand function and different service costs for firms. Finally, the e‐tailer or the manufacturer switches to outsource service to a 3PL when the service cost of the 3PL is not large. Specifically, the 3PL also benefits from the consistent service channel choice under certain condition.