Coordination in a Single-Retailer Two-Supplier Supply Chain under Random Demand and Random Supply with Disruption

Fei Hu,Zudi Lu,Cheng-Chew Lim,Xiaochen Sun

doi:10.1155/2013/484062

Fei Hu, Zudi Lu + Show 2 more

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https://doi.org/10.1155/2013/484062

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Abstract

This paper studies the coordination issue of a supply chain consisting of one retailer and two suppliers, a main supplier and a backup supplier. The main supplier’s yield is subject to disruption and the retailer faces a random demand. We determine the retailer’s optimal ordering policy and the main supplier’s production quantity that maximize expected profit of the centralized supply chain. We also analyze the decentralized scenario, and a combination of overproduction risk sharing and buy-back contracts with a side payment from/to the backup supplier is provided to coordinate the supply chain. Numerical examples are given to gain some qualitative insights.

Highlights

This paper studies the coordination issue of a supply chain among one retailer and two suppliers under random demand and supply disruption
We propose an overproduction risk sharing (OPRS) and buy-back contracts with a side payment for supply chain coordination
We investigate the coordination between one retailer and two suppliers—one is a main source and the other is a backup, and show that two contracts with three components: overproduction risk sharing, buy-back, and a payment from/to the backup supplier cannot only coordinate our supply chain and divide the whole chain’s expected profit at any proportion among the three members

Summary

Introduction

This paper studies the coordination issue of a supply chain among one retailer and two suppliers under random demand and supply disruption. Wang [7] investigated the traditional and vendor-managed inventory arrangements in a supply chain and obtained the optimal production/inventory decisions under random yield and uncertain demand for both arrangements He and Zhang [8] studied a seller/supplier commitment contract with minimum delivery commitment and analyzed the supply chain with the risk sharing contract. Discrete Dynamics in Nature and Society under a constant secondary market price- and a yielddependent secondary market price He and Zhao [9] investigated the ordering policy of the retailer, raw material planning decision of the supplier, and the optimal contracts for a three-level supply chain with random yield and demand. These inequalities make sure that each member has a positive profit

Centralized Model

Decentralized Model under a Traditional Arrangement

Supply Chain Coordination

Numerical Examples

Findings

Conclusion