Coordination of Supply Chain with One Supplier and Two Competing Risk-Averse Retailers under an Option Contract

Wang, Rui; Song, Shiji; Wu, Cheng

doi:10.1155/2016/1970615

Cited by 10 publications

(8 citation statements)

References 37 publications

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“…Chen et al (2014) explored different decisions such as supply chain coordination with option contracts, ideal production of risk-neutral suppliers, and ordering of loss-averse retailers. Wang et al (2016) examined the scenario in which two risk-averse retailers compete through promotion in order to derive the conditions of channel coordination under option contracts. According to Luo et al (2019), the option contract can help both the manufacturer and the supplier deal with risks effectively, and the researchers proposed an additional option contract agreement to improve supply chain coordination.…”

Section: Literature Reviewmentioning

confidence: 99%

Decisions and coordination of retailer-led fresh produce supply chain under two-period dynamic pricing and portfolio contracts

Yan

Han

2022

RAIRO-Oper. Res.

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Fresh agricultural produce is almost the staple food and necessity of people's daily diet all over the world. However, natural perishability and freshness affect the demand for fresh agricultural produce. Due to the change of freshness, the retailer has to adopt a multi-period dynamic pricing strategy to deal with unsold products. The research object of this paper is the retailer's two-echelon supply chain of fresh agricultural produce, and the aim is to achieve the optimal two-period coordination and ordering through options and wholesale contracts in the supply chain. In the case of two-period pricing, we find that the optimal wholesale order quantity increases with the decline of the price in the first period and tends to be stable with the decline of the price in the second period. In contrast, the price change in the first period has a greater impact on the retailer's optimal order quantity. The profits of both the retailer and the supplier increase significantly with the increase of the price in the first period, while the impact of the change of the price in the second period is not obvious. Meanwhile, decentralized decision-making can only be coordinated in the supply chain through the original option contract at the first-period price. In the second period, the cost-sharing contract is introduced to coordinate the supply chain, increase orders, and increase the profits of both the retailer and the supplier. These findings are of great significance for both the retailer and the supplier in the multi-period dynamic pricing of fresh produce under the option contract.

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Section: Literature Reviewmentioning

confidence: 99%

Decisions and coordination of retailer-led fresh produce supply chain under two-period dynamic pricing and portfolio contracts

Yan

Han

2022

RAIRO-Oper. Res.

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“…Wu et al [46] consider a commitment-option contract and analyze the impact of risk aversion on the manufacturer's optimal decisions. Wang et al [47] study a supply chain under option contract where two risk-averse retailers compete for demand.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Note that when α = 0, the CVaR of utility reduces to the expected utility, which is the objective function in many inventory models based on loss aversion (e.g., [18,20]). When λ = 1, the CVaR of utility reduces to the CVaR of profit, which is the objective function in many inventory models based on risk aversion (e.g., [29,47]). Furthermore, when both α = 0 and λ = 1, the CVaR of utility reduces to the expected profit, which is the objective function in many inventory models based on risk neutrality.…”

Section: Model Descriptionmentioning

confidence: 99%

Coping with Loss Aversion and Risk Management in the Supply Chain Coordination

et al. 2021

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In this paper, we apply a combined revenue sharing and buyback contract to investigate the channel coordination of a two-echelon supply chain with a loss-averse retailer. Since loss-averse decision makers usually take on more risks, the Conditional Value-at-Risk (CVaR) measure is introduced to hedge against it and the retailer’s objective is to maximize the CVaR of utility. We obtain the retailer’s optimal order quantity under the combined contract. It is shown that there is a unique wholesale price coordinating the supply chain if the retailer’s confidence level is less than a threshold that is independent of contract parameters. Moreover, a complete sensitivity analysis of parameters is carried out. In particular, the retailer’s optimal order quantity and coordinating wholesale price decreases as the loss aversion or confidence level increases, while it increase as the buyback price or sharing coefficient increases. Furthermore, there exists the situation where the combined contract can coordinate the chain even though neither the revenue sharing nor buyback contract can when the contract parameters are constrained.

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“…Lee et al [40] develop an efficient algorithm to compute a loss-averse newsvendor's optimal solution with uncertain demand and multiple options. Wang et al [41] expand upon this by considering a supply chain with two risk averse retailers and demonstrate that the channel can be coordinated with a call option contract. Considering only the call option contract without any firm orders such as those under a wholesale price contract for a two-echelon supply chain with a risk-averse retailer and risk-neutral supplier, Juanjuan et al [42] show that under some specific conditions, the supply chain can be coordinated.…”

Section: B Inclusion Of Risk Averse Membersmentioning

confidence: 99%

Optimal Decisions of a Supply Chain With a Risk-Averse Retailer and Portfolio Contracts

et al. 2019

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In this paper, we investigate a supply chain involving one risk-neutral supplier and one risk-averse retailer, where the retailer adopts the conditional value-at-risk (CVaR) criterion as his performance measure. To hedge against high risk, the retailer purchases call options from the supplier to adjust his firm orders. We derive the optimal order and production policies, with and without a call option contract and demonstrate that the call option contract can benefit both the retailer and the supplier. In addition, we also generate insights regarding how the contract parameters, level of risk aversion and shortage cost impact the retailer's optimal policy, highlighting the importance of considering the risk aversion and shortage cost simultaneously. Finally, we derive the condition for the supply chain to be coordinated and show that compared to non-coordinating contracts, the wholesale price and call option portfolio contracts proposed in this paper can achieve Pareto optimality. Numerical experiments are conducted to demonstrate theoretical results and observations. INDEX TERMS Supply chain coordination, call option contract, risk-aversion, conditional value-at-risk, shortage cost.

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Coordination of Supply Chain with One Supplier and Two Competing Risk-Averse Retailers under an Option Contract

Cited by 10 publications

References 37 publications

Decisions and coordination of retailer-led fresh produce supply chain under two-period dynamic pricing and portfolio contracts

Decisions and coordination of retailer-led fresh produce supply chain under two-period dynamic pricing and portfolio contracts

Coping with Loss Aversion and Risk Management in the Supply Chain Coordination

Optimal Decisions of a Supply Chain With a Risk-Averse Retailer and Portfolio Contracts

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