Coordinating a supply chain system for production, pricing and service strategies with disruptions

Abstract

This paper investigates the coordination problem of a supply chain system composed of one supplier and one retailer. To coordinate, we apply revenue sharing contracts in the context of supply chain disruptions management. Herein, we consider disruptions at two factors namely demand and service sensitivity coefficient and propose a responsive pricing, service level, production and contract decisions model. Our results reveal that the proposed coordination mechanisms could lead to the supply chain system of interest achieving around 80% to 90% efficiency while satisfying win-win positions of the partners. In addition, this work illustrates that the coordinated supply chain produces more profit to the retailer. Our findings also indicate the original contracts for the non-disrupted supply chain system show some level of robustness to the scenarios that show a small increase of the market scale and service sensitivity coefficient. More specifically, the original contracts work fine as long as the increment of markets scale is less than 30% of the market base. However, for most of the cases, the production, pricing, service strategies, and contracts policies need to be adjusted to tackle the disruptions. We show the usefulness of our work by providing some numerical examples.