Channel coordination of a risk-averse supply chain: a mean– variance approach

ABSTRACT

In the age of rapid technological advancement and digitization, coordination strategy remains an important issue for the supply chain. Additionally, the uncertainty caused by the disruption often induces the risk aversion in the supply chain members. Motivated by this issue, here we propose a coordination mechanism for a risk-averse supply chain using mean-variance approach. Here, we consider both centralized and decentralized cases and show that our analysis holds good for a central planner as well as for a decentralized supply chain under channel coordinating contracts such as buyback and revenue-sharing schemes. With the help of theoretical and numerical analysis, we exhibit how an individual supply chain agent's risk aversion behavior can impact the contracts selection mechanism - from the profitability perspective. We extend our analysis to a dyadic setting to a single-supplier multiple-retailer network and confirm that pure strategy Nash equilibrium exists when all the retailers are risk-averse with varying risk attitude.