Channel coordination in supply chains with agents having mean-variance objectives

Tsan Ming Choi, Duan Li, Houmin Yan, Chun Hung Chiu

Research output: Journal article publicationJournal articleAcademic researchpeer-review

141 Citations (Scopus)

Abstract

This paper investigates the issues of channel coordination in a supply chain when the individual supply chain decision makers take mean-variance (MV) objectives. We propose an MV formulation to capture the risk preference of each individual supply chain agent. Through the studies of a wholesale pricing policy, we find that the incorporation of risk concerns into the setting of supply chain coordinating policy is very important because it can substantially affect the achievability of channel coordination. It is also interesting to find that channel coordination depends on how big the net difference between the risk preferences of the supply chain coordinator and the retailer is. Thus, a slightly risk averse supply chain coordinator can successfully coordinate with a slightly risk prone retailer but not a very risk averse retailer. Numerical analyses are included and managerial insights are developed.
Original languageEnglish
Pages (from-to)565-576
Number of pages12
JournalOmega
Volume36
Issue number4
DOIs
Publication statusPublished - 1 Aug 2008

Keywords

  • Newsvendor problem
  • Risk preference
  • Supply chain management

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research
  • Information Systems and Management

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