Abstract
This paper considers how to coordinate a supply chain (SC) consisted of one supplier and one retailer who possess different risk aversion preference with a contract. Based on the classical buy-back contract, this paper presents an extended buy-back contract. In addition to the member’s objective of maximizing his expected profit, downside risk constraint is used to represent the SC member’s risk aversion preference. Under different risk aversion preference combination, the SC perfect solution existence conditions are identified and the specific contract is provided accordingly. This research finds out that, with a low risk aversion supplier and a high risk aversion retailer, the supplier as the SC coordinator can give the retailer incentive to increase the order quantity so as to reach SC perfect coordination. Finally a numerical analysis verifies the effectiveness of the extended buy-back contract.
Highlights
Chain (SC) performance is affected by many uncertainty factors
We consider a supply chain that is consisted of a supplier and a retailer who posses different risk aversion preferences in a single period
Based on the initial buy-back contract we provide the extended buyback contract model
Summary
Chain (SC) performance is affected by many uncertainty factors. In the supply chain contract (SCC) literatures two major uncertainty factors receives most focus. The numerical analysis of the channel coordination contract properties is presented for a SC consisted of different risk aversion members in [5]. This paper is devoted to coordination of a supply chain consisting of a supplier and a retailer with different risk aversion preference. Market demand is stochastic and with a specific known distribution Both the supplier and the retailer have the complete knowledge about the demand, profits, costs, risk-aversion preferences and prices. The retailer decides order quantity that maximizes his expected profit as well as satisfies his risk aversion constraint according to the contract. We assume there is a relationship among the parameters of c,b, ,p that is 0 c b p
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