Advances in Production Engineering & Management
Volume 17 | Number 2 | June 2022 | pp 169–182
https://doi.org/10.14743/apem2022.2.428
Supply chain coordination based on the probability optimization of target profit
Jian, M.; Liu, T.; Hayrutdinov, S.; Fu, H.
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A B S T R A C T
Supply chain management decision-making study mainly based on the expected utility theory and most of the studies are obtaining the average values in the statistical sense. For Supply Chain (SC) decision-making individuals the statistical-based optimal profitability brings decision conflicts in the particular market within a specific period. Moreover, the small and medium outsourcing participants face unexpected outcomes which are the main cause of SCs disruption. This study proposes a contractual coordination model that maximizes the probability of a pre-determined Profit Target (PT). The purpose of this paper is to reduce the influence of demand uncertainty with the high risk of unexpected outcomes. We constructed the Revenue Sharing (RS) and buyback contract models within the SC participants’ PT conditions and then discussed the SC overall performance. We simulated and analyzed the coordination conditions and the decision-making preferences of SC participants under the two contracts. From the comparison, under the PT strategy, the retailer is more willing to adopt the RS contract rather than the buyback contract. But the SC upstream supplier's contract selection decision depends on the specific contract parameters. Finally, numerical results indicated the contract selection decisions with the given PT of both SC participants.
A R T I C L E I N F O
Keywords • Supply chain; Coordination; Contractual coordination; Revenue-sharing contract; Buyback contract; Profit target; Optimization; Probability optimization
Corresponding author • Liu, T.
Article history • Received 14 February 2022, Revised 8 August 2022, Accepted 12 August 2022
Published on-line • 31 August 2022
E X P O R T C I T A T I O N
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