Abstract
This paper develops a supply chain model consisting of a single supplier and a single retailer. The market demand is assumed to be stochastic and the supplier is prone to disruption. The centralised model is provided as benchmark, and non-coordinated model is studied with the wholesale price-only contract. To enhance the total expected profit, we apply buyback contract and show that the chain may be coordinated thorough this contract, although the chain is vulnerable to disruption. To mitigate the effect of disruption, we further propose a backup supplier to be involved in the chain. We show that the backup supplier substantially enhances the profit of the retailer when there is no coordination between the primary supplier and the retailer. Furthermore, if the retailer is allowed to coordinate with the primary supplier, we show that the coordination remains effective for certain range of disruption probability and collapses thereafter. Numerical examples are given to illustrate the developed model.
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