Supply Chain Systems Coordination With Multiple Risk Sensitive Retail Buyers

This paper explores supply chain systems coordination challenges in the presence of multiple heterogeneous risk sensitive retail buyers using the commonly seen markdown contract under both information symmetric and asymmetric settings. For each setting, we explore two scenarios. The first scenario allows the upstream manufacturer to freely set a separate contract to each risk averse retailer, whereas the second scenario specifies that the manufacturer has to grant the same contract to each risk averse retailer under the fair trade rule. We analytically show that the markdown contract which can achieve “perfect coordination” only exists in the first scenario (without the fair trade rule) under the information symmetric setting. For all the other scenarios, we find that perfect coordination cannot be achieved by the markdown contract, and hence we develop the computational algorithms to help identify the markdown contract parameter(s) which can achieve the “best possible coordination.” In addition, we reveal that the manufacturer's risk attitude does significantly affect the achievability of perfect coordination. The findings of this paper also provide analytical evidence to show that the fair trade rule would do more harm than good for supply chain systems optimization under simple supply contracts.