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Pareto analysis of supply chain contracts under satisficing objectives

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  • He, Xiuli
  • Khouja, Moutaz

Abstract

Supply chain coordination has become critical to firms as increased pressure is placed on them to improve performance. We evaluate the performance of Push, Pull, and Advance-purchase discount (APD) contracts in a manufacturer-retailer supply chain where one or both firms have a satisficing objective of maximizing the probability of achieving a target profit. We identify the resulting operational modes of the supply chain and potential conflicts over the preferred contracts under the Push, Pull, and APD contracts. When both firms are satisficing, conflict over the preferred contract arises when the manufacturer has an ambitious profit target or the retailer has a low profit target. We show that the Push contract can result in a large decrease in the expected profit of a risk-neutral manufacturer when the retailer maximizes the probability of achieving her maximum expected profit. We find that a modified buy-back and profit guarantee contracts can provide significant Pareto improvement over Push or APD contracts when the manufacturer is risk-neutral and the retailer is satisficing, while revenue-sharing contracts cannot. In contrast, revenue sharing and modified buy-back contracts are Pareto dominant under certain conditions when the manufacturer is satisficing and the retailer is risk-neutral.

Suggested Citation

  • He, Xiuli & Khouja, Moutaz, 2011. "Pareto analysis of supply chain contracts under satisficing objectives," European Journal of Operational Research, Elsevier, vol. 214(1), pages 53-66, October.
  • Handle: RePEc:eee:ejores:v:214:y:2011:i:1:p:53-66
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    2. Shi, Chunming (Victor) & Yang, Shilei & Xia, Yu & Zhao, Xuan, 2011. "Inventory competition for newsvendors under the objective of profit satisficing," European Journal of Operational Research, Elsevier, vol. 215(2), pages 367-373, December.
    3. Kalakbandi, Vinay Kumar, 2018. "Managing the misbehaving retailer under demand uncertainty and imperfect information," European Journal of Operational Research, Elsevier, vol. 269(3), pages 939-954.
    4. Irfanullah Khan & Biswajit Sarkar, 2021. "Transfer of Risk in Supply Chain Management with Joint Pricing and Inventory Decision Considering Shortages," Mathematics, MDPI, vol. 9(6), pages 1-20, March.
    5. Pinto, Roberto, 2016. "Stock rationing under a profit satisficing objective," Omega, Elsevier, vol. 65(C), pages 55-68.
    6. Chernonog, Tatyana & Avinadav, Tal, 2014. "Profit criteria involving risk in price setting of virtual products," European Journal of Operational Research, Elsevier, vol. 236(1), pages 351-360.
    7. Renzheng Xue & Fengbin Zhang & Feng Tian, 2018. "A System Dynamics Model to Evaluate Effects of Retailer-Led Recycling Based on Dual Chains Competition: A Case of e-Waste in China," Sustainability, MDPI, vol. 10(10), pages 1-18, September.
    8. Juzhi Zhang & Suresh P. Sethi & Tsan‐Ming Choi & T.C.E. Cheng, 2022. "Pareto optimality and contract dependence in supply chain coordination with risk‐averse agents," Production and Operations Management, Production and Operations Management Society, vol. 31(6), pages 2557-2570, June.
    9. Chernonog, Tatyana & Avinadav, Tal & Ben-Zvi, Tal, 2019. "How to set price and quality in a supply chain of virtual products under bi-criteria and risk consideration," International Journal of Production Economics, Elsevier, vol. 209(C), pages 156-163.
    10. Hao, Zhongyuan & Li, Juan & Cai, Jinling, 2023. "Allocation of inventory responsibilities in overconfident supply chains," European Journal of Operational Research, Elsevier, vol. 305(1), pages 207-221.
    11. Yang, Shilei & Shi, Chunming (Victor) & Zhang, Yibin & Zhu, Jing, 2014. "Price competition for retailers with profit and revenue targets," International Journal of Production Economics, Elsevier, vol. 154(C), pages 233-242.
    12. Fernández, Arturo J., 2012. "Minimizing the area of a Pareto confidence region," European Journal of Operational Research, Elsevier, vol. 221(1), pages 205-212.
    13. Avinadav, Tal & Chernonog, Tatyana & Perlman, Yael, 2014. "Analysis of protection and pricing strategies for digital products under uncertain demand," International Journal of Production Economics, Elsevier, vol. 158(C), pages 54-64.
    14. Chung, Chia-Shin & Flynn, James & Kuik, Roelof & Staliński, Piotr, 2013. "A single-period inventory placement problem for a supply system with the satisficing objective," European Journal of Operational Research, Elsevier, vol. 224(3), pages 520-529.

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