Supply chain coordination in the presence of uncertain yield and demand

Abstract

This paper focuses on a two-echelon supply chain consisting of a seller and a buyer. Considering the case where the buyer faces uncertain demand and yield, the paper investigates the buyback contract for the supply chain and studies how the yield uncertainty and the relative bargaining power affect the performance of buyback contract. The results suggest that when the seller's bargaining power is relatively high and can control the uncertain yield, the buyback contract is sufficient to coordinate the supply chain. Conversely, when the seller's bargaining power is relatively low or cannot guarantee yield stability, the buyback contract does not work. To coordinate such a supply chain, a combined contract named Buy-Back-Revenue-Sharing contract is proposed. Furthermore, this paper presents the optimal orders to maximize the profits of the buyer and the whole supply chain and it finds that if the seller cannot control the yield, the buyer will place fewer orders and both parties will gain lower profit with supply chain coordination.