An adjustable bi-level wholesale price contract for coordinating a supply chain under scenario-based stochastic demand

Recently, significant research attention has been paid to supply chain (SC) coordination. However, previous studies assume that the market demand is deterministic or has a certain probability distribution. Taking a new approach, this paper analytically addresses the coordination of an SC under a scenario-based demand and proposes an adjustable bi-level wholesale price contract. To analyse the coordination problem under a scenario-based demand, we focus on corporate social responsibility (CSR) investment as an important decision in the SC context and consider a three-tier SC (one manufacturer, one distributor, and one retailer) where the retailer faces a scenario-based stochastic CSR-sensitive demand. Considering a manufacturer-Stackelberg game model, the manufacturer as a leader determines the amount of investment in the CSR issues and the retailer as a follower decides on the order quantity by considering possible demand scenarios. First, we propose the decentralized and centralized decision-making models using a scenario-based approach. Afterward, to resolve the channel conflict in each possible demand scenario, an adjustable bi-level wholesale contract is proposed to entice all SC actors to take part in the coordination scheme. Moreover, a profit-sharing plan is developed based on the Nash-bargaining model to fairly share the extra profits among SC actors. Finally, in order to analyse the efficacy of proposed models, a numerical example and a set of sensitivity analyses are carried out. The results indicate that the proposed contract not only coordinates the three-level SC under a scenario-based stochastic demand, but also improves the CSR level in comparison with the decentralized structure.