Logistics service strategy for e‐commerce supply chain: Interactive impacts of cost reduction effort and fairness concern

Abstract

In recent years, the logistics industry has undergone tremendous development because of the growth of e‐commerce, providing supply chain members with various options for logistics service strategies. Furthermore, cost reduction effort (CRE) and fairness concern have become even more significant on the logistics operation for e‐commerce supply chain because of changing market conditions and consumer demands. Considering CRE and fairness concern, we propose a Stackelberg game model where the manufacturer acts as a leader to analyze how a manufacturer or a retailer strategically decides between two logistics service strategies, i.e., the manufacturer‐provided logistics service and the retailer‐provided logistics service. When the retailer provides logistics service in the absence of fairness concern, a “win‐win” outcome can be achieved. However, profit does not always increase in proportion to the logistics service cost factor when fairness concern is considered. Additionally, there is a situation where the optimal logistics service strategy for the manufacturer and the retailer is contrary to each other in different ranges of fairness concern intensity when the logistics service provider both has CRE and fairness concern. As a consequence, it becomes important for both the manufacturer and the retailer to balance their fairness concern and consider the effectiveness of CRE when making decisions about adopting logistics service strategy.