Coordinating the Supply Chain with Purchase Service Offered by a 3PL Firm

Abstract

This paper attempts to understand whether the 3PL firm who has a partnership with manufacturer could share the risk with the retailer and improve the supply chain performance through purchase service. Comparing with the performance of the supply chain in which the loss-averse retailer purchases from manufacturer directly, we find that 3PL firm offering purchase service could help the retailer reduce risk with designing the option contract which is valid only when there is a reasonable profit sharing interval between the 3PL firm and the retailer. Furthermore, with the cooperation between manufacturer and 3PL firm, the wholesale price and option price is lower, which causes the retailer's order quantity to be approaching the order quantity of a centralized supply chain. However, when the cooperation reaches a certain level, the interests of the manufacturer will be impaired.