Coordination Contracts in a Dual-Channel Supply Chain with a Risk-Averse Retailer

Lijing Zhu, Xiaohang Ren, Chulung Lee and Yumeng Zhang
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Lijing Zhu: Academy of Chinese Energy Strategy, China University of Petroleum-Beijing, 18 Fuxue Road, Changping, Beijing 102200, China
Chulung Lee: School of Industrial Management Engineering, Korea University, Anamdong 5-ga, Seongbuk-gu, Seoul 136-713, Korea
Yumeng Zhang: School of Business and Management, Queen Mary University of London, Mile End Road, London E1 4NS, UK

Sustainability, 2017, vol. 9, issue 11, 1-21

Abstract: Dual channels have become popular strategies for manufacturers due to the development of innovative selling platforms. Examples in practice also show that the lack of relationship management, such as cooperation and sharing, may cause an unsustainable supply chain performance. However, previous studies on coordination of dual-channel supply chains always focus on the contribution to profits and neglect the sustainability of relationship development between channel members. In this paper, we study the coordination of a dual-channel supply chain including a direct channel and a traditional channel. Under the fact that sustainable economy, instead of profit maximization, is the more appropriate objective in channel members’ decision making, we consider the retailer’s risk exposure and assume the risk degree is also a factor that impacts decision making. We assume the manufacturer is risk-neutral and the retailer is risk-averse, and measure the risk attitude with Conditional Value-at-Risk (CVaR) approach. Two traditional contracts widely used in single-channel supply chains, i.e., revenue-sharing contract and buy-back contract, are analyzed first. Although some researchers have discussed that traditional contracts cannot coordinate the dual-channel supply chain, our results show that traditional contracts can still come into play with restrictions on the risk-averse degree. Then we propose a risk-sharing contract which could distribute profits between two channel members and coordinate the system under varied risk-averse degrees with a fixed risk-sharing degree. Finally, we analyze the sensitivity of different parameters to illustrate the stable coordinating outcomes of this contract, and prove its generalization with more powerful channel members. The results provide important managerial insights.

Keywords: supply chain coordination; CVaR; dual channel; risk-averse; sustainable economy (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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