Ordering Decision Of The Retailer Based On Multiple Risks And Payment Schemes

Due to demanding customers and competitive pressures, businesses today are restructuring themselves to operate in a global environment. There are many advantages for global supply chain, such as low labor cost, low raw material cost, and large market. But, there are also some disadvantages. The operation of the firm has become very complex. And the firm also faces many uncertainties, such as demand uncertainty, supply uncertainty, exchange rate uncertainty, and so on. These uncertainties will make the supply chain fill of risks. So, it is very important for the firm to emphasis the global supply chain risk management.This paper examines the impact of demand risk, supply risk and exchange rate risk on the optimal ordering policies of a loss-averse retailer that is served by two suppliers in the global supply chain environment. Using prospect theory, we formulate a decision model concerned with utility maximization. We prove the existence of equilibrium and derive the optimal ordering policies. Using comparative static analysis, we analyze the impact of risk parameters on the optimal order quantity and the firm’s performance. Finally, we conduct a numerical analysis to illustrate the analytical results. We get the following conclusions:(1) The optimal order quantity exists and is unique whatever kind of payment.(2) When the retailer in the case of high supply reliability of foreign markets and high exchange rate risk, advance payment is better than cash on delivery.(3) When the retailer in the case of high supply reliability and exchange rate stability, cash on delivery is better than advance payment.(4) When the discount rate is small, the advance payment is better than cash on delivery; however cash on delivery is better than advance payment when the discount rate is large.etc.