Open AccessOptimization and coordination in a service-constrained supply chain with the bidirectional option contract under conditional value-at-risk
Author(s) -
Han Zhao,
Bangdong Sun,
Hui Wang,
Shiji Song,
Yuli Zhang,
Liejun Wang
Publication year - 2022
Publication title -
discrete and continuous dynamical systems. series s
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.481
H-Index - 34
eISSN - 1937-1632
pISSN - 1937-1179
DOI - 10.3934/dcdss.2022021
Subject(s) - supply chain , profit (economics) , microeconomics , business , risk aversion (psychology) , service (business) , risk neutral , order (exchange) , expected shortfall , value (mathematics) , economic order quantity , option value , actuarial science , expected utility hypothesis , risk management , computer science , risk analysis (engineering) , economics , finance , marketing , financial economics , machine learning , incentive
This paper investigates the optimal operational decisions for the risk-neutral supplier and the risk-averse retailer in the supply chain with a service requirement under the conditional value-at-risk. Specifically, the optimal order and production policies with and without the bidirectional option contract are derived. Further, this paper shows that the optimal conditional value-at-risk of the retailer is non-increasing in the service requirement, while the optimal expected profit of the supplier is non-decreasing in the service requirement. When the service requirement is binding, the optimal conditional value-at-risk of the retailer is increasing in the risk aversion, while the optimal expected profit of the supplier is decreasing in the risk aversion. In addition, it is shown that with the bidirectional option contract, the service level provided by the retailer is equivalent to (higher than) that without them when the service requirement is (not) binding. Finally, this paper demonstrates that the bidirectional option contract can mitigate the effect of risk aversion on the retailer's order quantity, benefit both the retailer and supplier, and improve the performance of the supply chain. Numerical experiments are conducted to further confirm our results.