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Supply Chain Coordination with a Risk-Averse Retailer and a Combined Buy-Back and Revenue Sharing Contract

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  • Han Zhao

    (Department of Automation, Tsinghua University, Beijing 100084, P. R. China2Department of Basic Science, Army Logistics Academy, Chongqing 401311, P. R. China)

  • Shiji Song

    (Department of Automation, Tsinghua University, Beijing 100084, P. R. China)

  • Yuli Zhang

    (School of Management and Economics, Beijing Institute of Technology, Beijing 100081, P. R. China)

  • Jatinder N. D. Gupta

    (College of Business, University of Alabama in Huntsville, Huntsville, AL 35899, USA)

  • Anna G. Devlin

    (LeBow College of Business, Drexel University, Philadelphia, PA 19104, USA)

  • Raymond Chiong

    (School of Electrical Engineering and Computing, The University of Newcastle, Callaghan, NSW 2308, Australia)

Abstract

This paper investigates the ability of a combined buy-back (BB) and revenue sharing (RS) contract to improve the efficiency of a supply chain involving a risk-neutral supplier and a risk-averse retailer facing stochastic demand. We show that the combined contract can coordinate the supply chain under mild conditions. Further, the effects of risk aversion and contract parameters on the agents’ decision-making are analyzed when the retailer’s risk aversion is modeled by the conditional value-at-risk (CVaR) criterion. In contrast to individual BB and RS contracts, the combined contract is able to mitigate the effect of risk-aversion and allow the supplier to obtain higher expected profit. Moreover, situations exist where the combined contract can coordinate the supply chain when neither the BB nor the RS contract can coordinate it. Numerical experiments conducted further confirm the analytical results derived.

Suggested Citation

  • Han Zhao & Shiji Song & Yuli Zhang & Jatinder N. D. Gupta & Anna G. Devlin & Raymond Chiong, 2019. "Supply Chain Coordination with a Risk-Averse Retailer and a Combined Buy-Back and Revenue Sharing Contract," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 36(05), pages 1-23, October.
    • Handle: RePEc:wsi:apjorx:v:36:y:2019:i:05:n:s0217595919500283
    DOI: 10.1142/S0217595919500283
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    Cited by:

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    2. Shizhen Bai & Yonggan Wang, 2022. "Green Investment Decision and Coordination in a Retailer-Dominated Supply Chain Considering Risk Aversion," Sustainability, MDPI, vol. 14(20), pages 1-36, October.
    3. Han Zhao & Hui Wang & Wei Liu & Shiji Song & Yu Liao, 2021. "Supply Chain Coordination with a Risk-Averse Retailer and the Call Option Contract in the Presence of a Service Requirement," Mathematics, MDPI, vol. 9(7), pages 1-19, April.

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