Outsourcing logistics channel coordination with logistics service levels dependent market demand

The purpose of this paper is to resolve the coordination problems of an outsourcing logistics channel constituted by a Third Party Logistics Service Provider (TPLSP) and a client. High levels of logistics service that the TPLSP provides have a significant impact on customer demand for the client's products. When customer demand is not influenced by levels of logistics service, a properly designed revenue-sharing contract can achieve channel coordination and a win-win outcome. When customer demand is influenced by levels of logistics service, a properly designed combination contract with revenue-sharing and service-cost-sharing can achieve channel coordination and a win-win outcome. Under a revenue-sharing contract and a combination contract with revenue-sharing and service-cost-sharing, the TPLSP needs to undertake some inventory risk.