Supply Chain Coordination with Optimal Pricing and Logistics Service Decision in Online Retailing

Industry practice has shown that logistics service greatly affects the turnovers in online channel. High quality service will stimulate consumption. However, there are few studies investigating the decisions on pricing and logistics service quality simultaneously in the supply chain including one manufacturer and one online retailer. To address the gap, this paper studies the optimization of logistics service quality with pricing. To solve such decision-making challenges, firstly a basic model is applied to analyze how manufacturer decides the wholesale price. The retailing price and logistics service quality are also presented at cooperative and non-cooperative scenarios, respectively. Compared to the centralized policy, optimal price is higher in decentralized policy while the logistics service quality is lower. The expected profit of total chain decreases by 25%. Then, two contracts are proposed in a decentralized supply chain to coordinate the chain. Revenue sharing and cost sharing contract can realize the coordination, while sole cost sharing contract cannot. Finally, a numerical example is presented to verify the effectiveness of contract and the findings of models are illustrated.