Improving performance by coordinating a supply chain with third party logistics outsourcing under production disruption

•Supply chain with a manufacturer, a TPLSP and multiple retailers is considered.•Buyback and revenue sharing contracts are implemented.•Effect of production disruption at the source on the optimal decisions is investigated.•Associated contract parameters are designed so as to coordinate the supply chain.•Effects of contracts tend to emerge indifferent for relatively high probability of disruption.

Third Party Logistics (TPL) is playing a significant role in today's supply chain management. Business organisations require the service of this company to outsource part or all of their supply chain operations to reduce the burden of logistics activities and achieve customer satisfaction and overall performance. The paper aims to improve, through coordination, the performance of a supply chain consisting of a monopolistic manufacturer, a third party logistics service provider (TPLSP) and multiple independent retailers. The demand at each retailer is uncertain but sensitive to retail price; unexpected production disruption may occur at the source. Buyback and revenue sharing contracts are implemented in the proposed model and the associated contract parameters are designed so as to coordinate the decentralized supply chain. The participating entities' strategic decisions which increase the profitability of the whole supply chain are determined. It is observed from the numerical study that production disruption and TPL service have significant impacts on supply chain's performance, and the effects of buyback and revenue sharing contracts tend to emerge indifferent for relatively high probability of disruption.