Coordination of Supply Chains With a Retailer Under the Mean-CVaR Criterion

Abstract

We consider a single-period supply chain with a newsvendor retailer taking mean-conditional value-at-risk criterion. We characterize the retailer’s risk preference with respect to two risk parameters including risk coefficient and pessimistic coefficient which could jointly model risk-neutral, risk-averse, and risk-taking behavior in a unified framework. Based on this framework, we further analyze the impact of risk preference on the optimal order quantity of the retailer under an independent setting as well as in a supply chain. We then investigate how a supply chain with such a retailer could be coordinated by wholesale price contracts, buy-back contracts and revenue-sharing contracts, respectively. We introduce the notion of risk price which characterize the relations between the contract parameters and the wholesale price simply. And then we analytically derive the coordination contracts depending on the risk price and demonstrate how it affects the supply chain coordination. In the numerical examples, we analyze the impacts of the risk parameters on the wholesale price, buy-back price and revenue fraction as well as the corresponding performance of supply chain members in the coordinated supply chain, respectively. It shows that this paper presents a generalized framework of that in the case of risk-neutrality and risk-aversion.