Optimal logistics outsourcing: A geometric approach

We introduce a geometric approach to study logistics outsourcing issues in a principal-agent setting. A method is proposed to determine the optimal outsourcing contract, using the notion of general cost sharing function. Compared with traditional methods, this simplifies the discussion on optimal contract design significantly. This restriction of the contract space does not lead to any deterioration in performance as it includes the optimal contract in the feasible contract options. The simplicity of this approach makes it more adaptable to analyzing logistics outsourcing contract options. We use a newsvendor problem to demonstrate the applicability of this approach. Some extension of this approach is proposed to complete a further insight of this approach.