Collaboration and sharing in a retailer-led supply chain with yield uncertainty and loss aversion Online publication date: Fri, 21-May-2021
by Bin Chen; Wenying Xie; Fuyou Huang; Juan He
European J. of Industrial Engineering (EJIE), Vol. 15, No. 3, 2021
Abstract: This paper addresses a retailer-led supply chain in which a loss-averse supplier subject to yield uncertainty sells products to a risk-neutral retailer facing stochastic demand. An option contract is introduced to develop collaboration and sharing models to improve channel performance and achieve supply chain coordination. We derive the closed-form solution for the optimal production policy, and show that option contract is a viable alternative to effectively mitigate the serious conflicts between the dominant retailer and the supplier, which leads to a win-win situation. We analyse how the loss-averse behaviour of the supplier affects the production strategy and contract design. Also, we discuss how to share profit between the retailer and the supplier to achieve Pareto-improvement. In addition, we examine the role of option contract for achieving channel coordination and Pareto-improvement under loss aversion and single-side uncertainty. [Received: 5 November 2019; Accepted: 31 May 2020]
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