Abstract
This paper investigates the channel coordination of a supply chain (SC) consisting of a loss-averse retailer and a risk-neutral supplier under yield and demand uncertainties. Three existing contracts are analyzed. Our results demonstrate that the buyback (BB) and quantity flexibility (QF) contracts can not only coordinate the supply chain but also lead to Pareto improvement for each player, while the wholesale price (WP) contract fails to coordinate the chain due to the effects of double marginalization and risk preference. For comparison, a chain with a risk-neutral retailer is also analyzed. Furthermore, numerical examples are provided to demonstrate the effectiveness of the coordination contracts, and the impacts of loss aversion and random yield on the decision-making behaviors and system performance are then discussed.
Highlights
Due to various factors, such as unpredictable machine breakdowns, complicated production processes, and labor strikes, the output quantity of production or logistics processes is often related to random yield; this is prevalent in the agricultural and high-tech industries [1]
Our results demonstrate that the buyback (BB) and quantity flexibility (QF) contracts can coordinate the supply chain and lead to Pareto improvement for each player, while the wholesale price (WP) contract fails to coordinate the chain due to the effects of double marginalization and risk preference
This paper investigates the channel coordination of an supply chain (SC) consisting of a loss-averse retailer and a risk-neutral supplier
Summary
Due to various factors, such as unpredictable machine breakdowns, complicated production processes, and labor strikes, the output quantity of production or logistics processes is often related to random yield; this is prevalent in the agricultural and high-tech industries [1]. We focus on the following questions: (1) how will a loss-averse retailer determine his optimal order quantity under random yield and demand?, (2) does the coordination ability of the existing contracts change?, and (3) how will the retailer’s level of loss aversion and random yield affect the decision-making behaviors and the SC performance?. We analyze the optimal order policy and coordination ability of decentralized SC under three traditional coordination contracts (WP, BB, and QF) These three contracts are selected because they are popular and have been extensively studied in the SC literature. Our results provide insights into the effects of loss aversion and random yield on decision-making behaviors and system performance.
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