Coordination Contracts in a Dual-Channel Supply Chain with a Risk-Averse Retailer

Abstract

Dual channels have become popular strategies for manufacturers due to the development of innovative selling platforms. Examples in practice also show that the lack of relationship management, such as cooperation and sharing, may cause an unsustainable supply chain performance. However, previous studies on coordination of dual-channel supply chains always focus on the contribution to profits and neglect the sustainability of relationship development between channel members. In this paper, we study the coordination of a dual-channel supply chain including a direct channel and a traditional channel. Under the fact that sustainable economy, instead of profit maximization, is the more appropriate objective in channel members' decision making, we consider the retailer's risk exposure and assume the risk degree is also a factor that impacts decision making. We assume the manufacturer is risk-neutral and the retailer is risk-averse, and measure the risk attitude with Conditional Value-at-Risk (CVaR) approach. Two traditional contracts widely used in single-channel supply chains, i.e., revenue-sharing contract and buy-back contract, are analyzed first. Although some researchers have discussed that traditional contracts cannot coordinate the dual-channel supply chain, our results show that traditional contracts can still come into play with restrictions on the risk-averse degree. Then we propose a risk-sharing contract which could distribute profits between two channel members and coordinate the system under varied risk-averse degrees with a fixed risk-sharing degree. Finally, we analyze the sensitivity of different parameters to illustrate the stable coordinating outcomes of this contract, and prove its generalization with more powerful channel members. The results provide important managerial insights.

Capacity Allocation and Compensation in a Dual‐Channel Supply Chain under Uncertain Environment

“…In addition, they adopted the contract to coordinate a mixed-channel supply chain which consisted of several homogeneous retailers and direct selling channels. Zhu et al [33] studied the order decision making of members in a dual-channel supply chain with a risk-neutral manufacturer and a risk-averse retailer, designed a risksharing contract which is a hybrid with multiple contracts, and found that the risk-sharing contract could perform steadily when the market circumstance varies. He et al [24] studied a single-retailer single-vendor dual-channel supply chain model in which the vendor sells deteriorating products through its direct online channel and the indirect retail channel and developed a revenue sharing and two-part tariff contract to coordinate the supply chain.…”

Truck Scheduling at Cross-Docking Terminals: A Follow-Up State-Of-The-Art Review

“…The need for effective operations is the goal of many supply chain stakeholders in order to survive in a competitive environment. Nowadays, supply chain stakeholders put more emphasis on customer satisfaction and timely product deliveries [8][9][10][11][12]. According to Dong et al [10], many companies started investing substantial monetary resources into sustainability projects, aiming to reduce emissions during the manufacturing process, meet customer expectations, as well as improve social and environmental sustainability of supply chain operations.…”

A Probabilistic Alternative Approach to Optimal Project Profitability Based on the Value-at-Risk

“…To assess the project value, a reasonable cash-flow model that reflects the profitability impact factors that are the input variables of the DCF method should be established. This paper defines the following 15 profitability impact factors, (1) capital expenditure; (2) material cost; (3) labor cost; (4) net working capital; (5) overhead cost; (6) sale price; (7) production; (8) exchange rate; (9) corporate tax rate; (10) debt-to-equity ratio; (11) risk-free interest rate; (12) market risk premium; (13) beta; (14) cost of debt (COD) before tax; and (15) …”

“…To assess the project value, a reasonable cash-flow model that reflects the profitability impact factors that are the input variables of the DCF method should be established. This paper defines the following 15 profitability impact factors, (1) capital expenditure; (2) material cost; (3) labor cost; (4) net working capital; (5) overhead cost; (6) sale price; (7) production; (8) exchange rate; (9) corporate tax rate; (10) debt-to-equity ratio; (11) risk-free interest rate; (12) market risk premium; (13) beta; (14) cost of debt (COD) before tax; and (15) To assess the project value, a reasonable cash-flow model that reflects the profitability impact factors that are the input variables of the DCF method should be established. This paper defines the following 15 profitability impact factors, (1) capital expenditure; (2) material cost; (3) labor cost; (4) net working capital; (5) overhead cost; (6) sale price; (7) production; (8) exchange rate; (9) corporate tax rate; (10) debt-to-equity ratio; (11) risk-free interest rate; (12) market risk premium; (13) it consists of the cost of equity (COE), the COD, the debt-to-capital ratio (DC ratio ), and the corporate tax rate (TAX).…”

“…Therefore, this paper proposes a method to support investors' through a probabilistic alternative approach that takes advantage of the VaR method. VaR has been used in previous studies to analyze risk factors through sensitivity analysis to select risk priorities [12][13][14]. This paper proposes a probabilistic approach to compare and analyze alternatives using the Theory of Inventive Problem Solving (TRIZ or TIPS) and the business version of the Project Definition Rating Index (PDRI) as a differentiating method from previous studies.…”