Institute of Transportation, MOTC

Po-Kai Wen, 2008.06
Institute of Traffic and Transportation National Chiao Tung University

　　Whenever demand is uncertain, there is the risk of excess inventory in supply chain. In the trade relationship between the suppliers and the retailers, the order quantity cannot truly reflect the market demand due to the retailers want to avoid the risk of excess inventory, which may reduce the profit efficiency of retailers, suppliers and the overall supply chain. In this background, there are different kinds of supply chain contract, such as the wholesale price contracts, buyback contracts, revenue-sharing contracts, quantity-based contracts and so on. Before the selling season, the suppliers and the retailers first set contract through the provision of appropriate information and incentive policies, in order to seek the coordination, increase the efficiency of sale channels and attempt to create win-win-win situation among retailers, suppliers and the overall supply chain. The buyback contract is the newsboy model, which is the contract that suppliers encourage retailers to improve the order quantity.

　　In the past research, when dealing with the issue of uncertain market demand, often set the goal for maximizing the expected profit, and constructed the probability density model of the future market demand according to the history information or the product characteristic of the past market demand, and applied the statistics method to get the expected profit. If we only take the expected profit as the goal for considering the decision-making, there will easily ignore the risk cost. When the degree of dispersion in profit is greater, the risk cost is greater. Even the financial leverage may out of balance, and retailers, suppliers and the overall supply chain may face irreparable financial crisis.

　　In this research, the major issue is the decision-making in supply chain buyback contracts with risk management. Try to construct the general two-hierarchy supply chain model of the buyback contracts from the viewpoint of risk management, and discuss the relationship between changes of decision-making. Construction of the model in this study applies mean-variance, and establishes the two-hierarchy supply chain model of the buyback contracts under the risk management. And adopts numerical and analytical method, discussing when the wholesale price and the retail price are fixed under the buyback condition that is full return, the decision-making change relationship between the order quantity and the buyback price. However, in different contract decision-making scenario and different decision-maker risk preferences, there will be different contract decision-making. This study uses the simple example into the model, and discusses the decision-making under the contract decision-making scenario and the risk preferences of decision-maker.