Supply chain strategic behavior and coordination with a risk-averse manufacturer under random yield and demand

Abstract

Random yield and demand (dual random) have been long plaguing the operational decisions of supply chain enterprises. In this paper, we introduce a comprehensive supply chain model characterized by a risk-averse manufacturer and a risk-neutral distributor, with the latter providing a credit guarantee to secure financing for the former. Employing the conditional value-at-risk (CVaR) criterion, we conduct a thorough analysis of the strategic dynamics inherent in the dual random supply chain, yielding key findings. Firstly, our investigation begins by defining a risk-dominant yield rate, from which we derive a risk-averse level-dependent safety purchasing threshold. We find that the distributor’s purchasing decision at this threshold depends on a comparative assessment of revenue and risk, which is primarily influenced by the manufacturer’s risk attitude and the guarantee coefficient. Secondly, we discover that the production strategies of manufacturers are predominantly influenced by yield risk if the distributor’s actual purchasing quantity falls below the threshold, leading to the maintenance of a safety production quantity. Conversely, when the purchasing quantity surpasses the threshold, the distributor’s behavior becomes the focal point, prompting the manufacturer to expand production. Lastly, we identify that the credit guarantee plays a significant role in operational decisions only when the distributor’s orders exceed the safety purchasing threshold and the manufacturer exhibits a high risk tolerance. Under these circumstances, we design the credit guarantee contract to facilitate supply chain coordination, mitigating the double marginal effect and enhancing overall supply chain efficiency.