Demand Disruptions and Coordination of a Supply Chain with Convex Production Cost Function

Abstract

This paper studies how to coordinate a supply chain consisting of one supplier and one retailer with nonlinear price-demand function under market demand disruptions. Different from conventional research on channel coordination, it mainly focuses on how the demand disruption affects the coordination of the supply chain in which production cost is a convex function of production quantity It shows that the original production plan of the supply chain has certain robustness under centralized-decision system. For the decentralized-decision system, the coordination scheme designed for initially estimated market demand needs to be revised. To resolve this issue, an adjusted revenue sharing contract is presented, and it is proved that the supply chain can be fully coordinated by the adjusted revenue sharing contract.