Agricultural Supply Chain Coordination under Weather-Related Uncertain Yield

Abstract

In the context of agriculture, we focus in this paper on a two-echelon supply chain consisting of a supplier facing weather-related yield uncertainty and a retailer facing market-linked demand uncertainty. We mainly investigated how the randomness of yield and demand influences the profit of the supply chain members and the performance of the entire supply chain. We adopted an additive random yield model to capture the effect of uncontrollable weather factors on crop yield. For the case where a wholesale price contract fails to achieve coordination, we propose a revenue-sharing contract with a new structural arrangement and explore its influence on the contract coordination ability. In the revised contract, the retailer purchases all the actual output from the supplier instead of an order quantity; thus, the retailer shares yield risk with the supplier. To look at the implications in detail, we conducted a numerical analysis where the uncertain yield of maize crops originates from the fluctuating rainfall; the results indicate that the revised revenue-sharing contract can achieve supply chain coordination, and all the members improve their profit. This paper shows that by redesigning the contract structure, the classical revenue-sharing contract still has the coordinating ability in the presence of simultaneous yield and demand uncertainties.