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Supply Chain Coordination Model with Retailer fs Risk Attitudes

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    (Graduate School of Economics, Osaka University)

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    One of the major concerns in supply chain management is the coordination among various members of a supply chain comprising suppliers, manufacturers, distributors, wholesalers and retailers. We consider a newsvendor model in a two level supply chain with one supplier and one retailer. In this model, the retailer must order the item from the supplier prior to the selling season. Due to the short selling season and long replenishment lead time, the retailer is unable to reorder the item by using actual sales data generated from the early part of the season. The purpose of this paper is to discuss the e ect of the attitudes toward risk of the members on the coordination in a supply chain. Using the risk averse utility functions, we show that, the risk averse retailer's optimal order quantity is less than or equal to that of a risk neutral one, when the goodwill penalty cost is ignored. We also explore the relationship between the retailer's order quantity and the risk aversion function in a special case.

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    Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 08-03.

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    Length: 17 pages
    Date of creation: Jan 2008
    Handle: RePEc:osk:wpaper:0803
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    1. Li, Jianli & Liu, Liwen, 2006. "Supply chain coordination with quantity discount policy," International Journal of Production Economics, Elsevier, vol. 101(1), pages 89-98, May.
    2. Yao, Z. & Leung, Stephen C.H. & Lai, K.K., 2008. "Manufacturer's revenue-sharing contract and retail competition," European Journal of Operational Research, Elsevier, vol. 186(2), pages 637-651, April.
    3. Bose, Indranil & Anand, Paul, 2007. "On returns policies with exogenous price," European Journal of Operational Research, Elsevier, vol. 178(3), pages 782-788, May.
    4. Yao, Z. & Leung, Stephen C.H. & Lai, K.K., 2008. "Analysis of the impact of price-sensitivity factors on the returns policy in coordinating supply chain," European Journal of Operational Research, Elsevier, vol. 187(1), pages 275-282, May.
    5. Keren, Baruch & Pliskin, Joseph S., 2006. "A benchmark solution for the risk-averse newsvendor problem," European Journal of Operational Research, Elsevier, vol. 174(3), pages 1643-1650, November.
    6. Barry Alan Pasternack, 1985. "Optimal Pricing and Return Policies for Perishable Commodities," Marketing Science, INFORMS, vol. 4(2), pages 166-176.
    7. Yue, Xiaohang & Raghunathan, Srinivasan, 2007. "The impacts of the full returns policy on a supply chain with information asymmetry," European Journal of Operational Research, Elsevier, vol. 180(2), pages 630-647, July.
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