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Coordination of a Supply Chain with Demand Stimulation and Random Demand Disruption

Coordination of a Supply Chain with Demand Stimulation and Random Demand Disruption
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Author(s): Tiaojun Xiao (Nanjing University, China), Jia Luo (Nanjing University, China)and Jiao Jin (Nanjing University, China)
Copyright: 2011
Pages: 14
Source title: Supply Chain Optimization, Management and Integration: Emerging Applications
Source Author(s)/Editor(s): John Wang (Montclair State University, USA)
DOI: 10.4018/978-1-60960-135-5.ch001

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Abstract

This chapter develops a dynamic game model of a supply chain consisting of one manufacturer and one retailer to study the coordination mechanism and the effect of demand disruption on the coordination mechanism, where the market demand is sensitive to retail price and service. We assume that the supplier and the retailer only know the distribution of the disrupted amount after the demand disruption and they share the quantity deviation costs. We find that an all-unit wholesale quantity discount-subsidy mechanism can coordinate the supply chain. We give the coordination mechanism of the supply chain after the demand disruption and find that the demand disruption remarkably influences the price-service level decisions of the centralized supply chain and the coordination mechanism of the decentralized supply chain. In particular, the expected quantity differs from the planned quantity although the penalty costs prevent from this deviation.

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