Abstract:

Considering one supply chain consisting of one manufacturer and two retailers with the random demand dependent on product quality due to the inferior products and retailer’s sale promotion.  The centralized and decentralized decision models were set up respectively by using the equilibrium method when two retailers are risk-neutral. A buy-back plus promotion subsidy contract was put forward to coordinate the supply chain. Then the centralized and decentralized decision models based on CVaR criterion are set up respectively when two retailers are risk-averse, together with a buy-back plus promotion subsidy contract to coordinate this supply chain. Final example demonstrates the reasonability of the proposed models and feasibility of the coordinative contracts. The study reveals that the more risk-averse retailers are, the less order quantities are, which leads to lower profits of manufacturer, retailers and whole supply chain; yet the enhancement of qualified product’s rate benefits all agents; the decisions of supply chain with risk-neutral retailers are special cases of those with risk-averse retailers.

Key words: sale promotion; conditional value-at-risk (CVaR) criterion; decision models; buy-back plus promotion subsidy contract