Coordinating a Supply Chain with a Loss-Averse Retailer and Effort Dependent Demand

Abstract

This study investigates the channel coordination issue of a supply chain with a risk-neutral manufacturer and a loss-averse retailer facing stochastic demand that is sensitive to sales effort. Under the loss-averse newsvendor setting, a distribution-free gain/loss-sharing-and-buyback (GLB) contract has been shown to be able to coordinate the supply chain. However, we find that a GLB contract remains ineffective in managing the supply chain when retailer sales efforts influence the demand. To effectively coordinate the channel, we propose to combine a GLB contract with sales rebate and penalty (SRP) contract. In addition, we discover a special class of gain/loss contracts that can coordinate the supply chain and arbitrarily allocate the expected supply chain profit between the manufacturer and the retailer. We then analyze the effect of loss aversion on the retailer's decision-making behavior and supply chain performance. Finally, we perform a numerical study to illustrate the findings and gain additional insights.

Time series analysis of Nevirapine syrup consumption in prevention of mother-tochild transmission and optimal supply chain model in Oshana region, Namibia

“… 9 Gamma model is fit to inventory of medicines as it is a flexible, which means it has characteristics of other probability distributions like normal, exponential and Poisson. 3 , 4 Therefore, all these distribution models mentioned are part of gamma model. 10 Different studies have shown efficiency of gamma model in strengthening inventories both in pubic and private health facilities.…”

“…3 The study done in various countries on inventory control with gamma probability distribution encompasses both normal and negative exponential probability distribution models to represent the lead time demand of fast-and slow-moving items respectively, as a special case but also to cover the gap left by them. 4 These models play an important part in defining the optimal ordering and pricing policies. 5 The study conducted in Eastern Uganda on strengthening the program for the prevention of mother to child transmission of HIV, noticed that there was no consistency of NVP syrup supply to the facilities.…”

Coordinating a Supply Chain with a Loss-Averse Retailer under Yield and Demand Uncertainties

“…Liu et al [22] discussed the coordination issue of the SC with a loss-averse retailer under a QF contract and demonstrated that the SC can achieve coordination by regulating the degree of flexibility and adjusting the wholesale price. Li and Wang [23] investigated the channel coordination with a loss-averse retailer facing stochastic demand that is sensitive to sales efforts. However, these studies only investigated demand uncertainty while neglecting random yield.…”

Three-Echelon Supply Chain Contractual Coordination with Loss-Averse Multiple Retailer Preference

“…In the scope of two-stage SC coordination with uncertain demand where the manufacturer is risk-neutral and the retailer is loss-averse, the role of gain-loss sharing provision mitigating the loss-aversion effect, which decreases the retailer order quantity and total SC profit [19]. Recently, few authors have applied gain-loss prospect theory through SC contractual coordination such as wholesale price contract [20], buy-back contract [21], option contract [22], and revenue-sharing (RS) contracts on which other types of contract models are based. He and Zhao [20] studied the inventory, production, and contracting decisions of a multiechelon SC with both demand and supply uncertainty.…”

“…Li and Wang [21] have investigated the channel coordination issue of a two-stage SC with a risk-neutral manufacturer and a loss-averse retailer facing stochastic demand that is sensitive to the sales effort. Under the lossaverse newsvendor setting, a distribution-free gain-loss sharing and buy-back (GLB) contract have been shown to be able to coordinate the SC.…”