Outsourcing logistics channel coordination with revenue-sharing contracts for low value perishable product

This paper is to resolve the coordination problems of an outsourcing logistics channel where a third party logistics service provider (TPLSP) offers logistics service for a client who procures a low value perishable product, such as fresh fruit or vegetable, which usually undergo a long-distance transportation or long-time store during logistics process. In virtue of the product´s low value and perishable characteristics, the logistics service price selected by the TPLSP and product deteriorating rate have become important impact factors on the client´s order decision. A dynamic game model is established to analyze the impact of deteriorating rate on the client´s optimal order quantity and profit, and the benefit conflicts between them under a traditional transaction pricing contract, which leads to order quantity distortion and losses of the system´s optimal profits. To resolve the problem, a revenue-sharing contract is designed which can achieve full channel coordination and a win-win outcome under proper contract terms. Finally, the “tomato event” reported by newspaper is analyzed and the results effectively validate the conclusions of the theory model.