Supply chain performance under pull or push contracts in the presence of a market disruption

Abstract

AbstractRecently, market disruptions are more prone to emerging in supply chains. To investigate the impact of such a phenomenon on the performance of supply chain members and the entire supply chain, we consider a two‐tier supply chain that consists of one manufacturer (he) and one retailer (she). The retailer orders products from the manufacturer and then sells them to a market in the presence of a potential market disruption caused by a random event. According to the timing of the retailer's order, we study two types of wholesale price contracts, that is, the pull contract (the retailer orders only during the selling season and the manufacturer bears the full inventory risk) and the push contract (the retailer only orders before the selling season starts and bears the full inventory risk). We derive the equilibrium wholesale prices, retail prices, production quantities, order quantities, and corresponding profits under each contract, respectively. By making a comparison between these two types of contracts, we find that when the potential market disruption is severe, the pull contract performs better than the push contract for the supply chain, while the push contract is more attractive for the supply chain when the potential market disruption is relatively mild. Moreover, the manufacturer always prefers the push contract, and the retailer always prefers the pull contract. We also show that the pull or push contract with revenue sharing can still coordinate the supply chain with the potential market disruption.