Contract Coordination Strategy of Supply Chain with Substitution under Supply Disruption and Stochastic Demand

Rongfang Yan, Bin Lu and Jianjun Wu
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Rongfang Yan: College of Mathematics and Statistics, Northwest Normal University, Lanzhou 730070, Gansu, China
Bin Lu: College of Mathematics and Statistics, Northwest Normal University, Lanzhou 730070, Gansu, China
Jianjun Wu: College of Mathematics and Statistics, Northwest Normal University, Lanzhou 730070, Gansu, China

Sustainability, 2016, vol. 8, issue 7, 1-17

Abstract: Based on two substitute products, we study the inventory and contract coordination strategy of a three-echelon supply chain, which consists of two suppliers, a manufacturer and a retailer, under supply disruption and stochastic demand. We investigate the channel gross profit model of the centralized supply chain and obtain a unique optimal order quantity. Under a decentralized decision, we find that the commonly-used wholesale price contracts cannot coordinate the system. Then, we propose a buy-back contract and prove that this contract can more efficiently coordinate the system than the former. At last, we show that the integrated performance of the decentralized system can be maximized through choosing the buy-back parameter by the manufacturer and reveal that the effects of supply uncertainty and the substitution behavior of customers on the optimal decision by numerical examples.

Keywords: multi-echelon; substitute products; buy-back contract; supply disruption; coordination (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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