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Sustainability 2016, 8(7), 676; doi:10.3390/su8070676

Contract Coordination Strategy of Supply Chain with Substitution under Supply Disruption and Stochastic Demand

College of Mathematics and Statistics, Northwest Normal University, Lanzhou 730070, Gansu, China
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Academic Editor: Kannan Govindan
Received: 21 April 2016 / Revised: 1 July 2016 / Accepted: 8 July 2016 / Published: 18 July 2016
(This article belongs to the Special Issue How Better Decision-Making Helps to Improve Sustainability)
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Abstract

Based on two substitute products, we study the inventory and contract coordination strategy of a three-echelon supply chain, which consists of two suppliers, a manufacturer and a retailer, under supply disruption and stochastic demand. We investigate the channel gross profit model of the centralized supply chain and obtain a unique optimal order quantity. Under a decentralized decision, we find that the commonly-used wholesale price contracts cannot coordinate the system. Then, we propose a buy-back contract and prove that this contract can more efficiently coordinate the system than the former. At last, we show that the integrated performance of the decentralized system can be maximized through choosing the buy-back parameter by the manufacturer and reveal that the effects of supply uncertainty and the substitution behavior of customers on the optimal decision by numerical examples. View Full-Text
Keywords: multi-echelon; substitute products; buy-back contract; supply disruption; coordination multi-echelon; substitute products; buy-back contract; supply disruption; coordination
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Yan, R.; Lu, B.; Wu, J. Contract Coordination Strategy of Supply Chain with Substitution under Supply Disruption and Stochastic Demand. Sustainability 2016, 8, 676.

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