Capacity investment in supply chain with risk averse supplier under risk diversification contract

Juan He, Chao Ma and Kai Pan

Transportation Research Part E: Logistics and Transportation Review, 2017, vol. 106, issue C, 255-275

Abstract: In a supply chain with one risk neutral manufacturer and one risk averse supplier, we propose a risk diversification contract under which the manufacturer shares the losses of excess capacity and inadequate capacity with the supplier, and a side payment is transferred from the supplier to the manufacturer. Under the Conditional Value-at-Risk (CVaR) criterion, risk diversification contract has a Pareto improvement and can allocate system performance appropriately in both symmetrical and asymmetrical demand information. In addition, this contract can coordinate supply chain and has a larger market than an option, capacity reservation, payback, revenue-sharing contract under the symmetrical demand information.

Keywords: Capacity investment; Risk averse; Coordination; Nash bargaining (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (11)

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DOI: 10.1016/j.tre.2017.08.005

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