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Supply chain coordination with insurance contract

Author

Listed:
  • Lin, Zhibing
  • Cai, Chen
  • Xu, Baoguang

Abstract

We propose an insurance contract under which the supplier shares the risk of overstock and understock with the retailer, improving the efficiency of the supply chain with a newsvendor-type product. We first show that the insurance contract could coordinate the supply chain, and obtain bargaining solution in the supply chain model. Then we investigate the effects of agents' risk aversion on the supply chain model and acquire the Pareto-optimal solution through the mean-variance approach. After that, we compare the insurance contract with the revenue sharing contract, focusing particularly on their differences. Finally, extensive numerical studies are conducted, and managerial implications are proposed.

Suggested Citation

  • Lin, Zhibing & Cai, Chen & Xu, Baoguang, 2010. "Supply chain coordination with insurance contract," European Journal of Operational Research, Elsevier, vol. 205(2), pages 339-345, September.
  • Handle: RePEc:eee:ejores:v:205:y:2010:i:2:p:339-345
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    References listed on IDEAS

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    1. Choi, Tsan-Ming & Li, Duan & Yan, Houmin, 2008. "Mean-variance analysis of a single supplier and retailer supply chain under a returns policy," European Journal of Operational Research, Elsevier, vol. 184(1), pages 356-376, January.
    2. Lau, Hon-Shiang & Lau, Amy Hing-Ling, 1999. "Manufacturer's pricing strategy and return policy for a single-period commodity," European Journal of Operational Research, Elsevier, vol. 116(2), pages 291-304, July.
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    4. Abel P. Jeuland & Steven M. Shugan, 1983. "Managing Channel Profits," Marketing Science, INFORMS, vol. 2(3), pages 239-272.
    5. Barry Alan Pasternack, 1985. "Optimal Pricing and Return Policies for Perishable Commodities," Marketing Science, INFORMS, vol. 4(2), pages 166-176.
    6. Choi, Tsan-Ming & Li, Duan & Yan, Houmin & Chiu, Chun-Hung, 2008. "Channel coordination in supply chains with agents having mean-variance objectives," Omega, Elsevier, vol. 36(4), pages 565-576, August.
    7. Terry A. Taylor, 2002. "Supply Chain Coordination Under Channel Rebates with Sales Effort Effects," Management Science, INFORMS, vol. 48(8), pages 992-1007, August.
    8. Jan A. Van Mieghem, 2003. "Commissioned Paper: Capacity Management, Investment, and Hedging: Review and Recent Developments," Manufacturing & Service Operations Management, INFORMS, vol. 5(4), pages 269-302, July.
    9. Gérard P. Cachon & Martin A. Lariviere, 2005. "Supply Chain Coordination with Revenue-Sharing Contracts: Strengths and Limitations," Management Science, INFORMS, vol. 51(1), pages 30-44, January.
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    Citations

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    Cited by:

    1. Cai, Jianhu & Hu, Xiaoqing & Tadikamalla, Pandu R. & Shang, Jennifer, 2017. "Flexible contract design for VMI supply chain with service-sensitive demand: Revenue-sharing and supplier subsidy," European Journal of Operational Research, Elsevier, vol. 261(1), pages 143-153.
    2. repec:eee:transe:v:109:y:2018:i:c:p:293-310 is not listed on IDEAS
    3. repec:spr:annopr:v:257:y:2017:i:1:d:10.1007_s10479-014-1689-0 is not listed on IDEAS
    4. Lingxiu Dong & Brian Tomlin, 2012. "Managing Disruption Risk: The Interplay Between Operations and Insurance," Management Science, INFORMS, vol. 58(10), pages 1898-1915, October.
    5. Liu, Weihua & Wang, Yijia, 2015. "Quality control game model in logistics service supply chain based on different combinations of risk attitude," International Journal of Production Economics, Elsevier, vol. 161(C), pages 181-191.
    6. Löffler, Clemens & Pfeiffer, Thomas & Schneider, Georg, 2012. "Controlling for supplier switching in the presence of real options and asymmetric information," European Journal of Operational Research, Elsevier, vol. 223(3), pages 690-700.
    7. Ke Wang & Jinwen Sun & Liang Liang & Xiaoyan Li, 2016. "Optimal contracts and the manufacturer’s pricing strategies in a supply chain with an inequity-averse retailer," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 24(1), pages 107-125, March.

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