Inventory Decisions In Two-Echelon Supply Chain With Agents Have Different Risk Preferences

Inventory management has occupied an important position in supply chain management, although some new management methods to reduce inventory levels, such as Zero-stock Management, Virtual-inventory and so on, considering the supply risk, managers pay more and more attentions on keeping an appropriate amount of stocks to avoid supply chain disruptions.Inventory management has been researched for a long time, as the information technology is speeding up, many products turn into perishable goods, so that more and more scholars research and improve newsboy model to solve inventory problems. From theory to experiment research, there is a great amount of literature about newsboy model. During this, it was found that there are many differences between the theoretical results and practical application, and one reason was the traditional newsboy model based on the assumption that people are rational, but they are not actually. And then researchers work on narrowing the gap between theory and applications.People’s inventory decision is affected by many factors, such as regret psychology, risk preference, excessive self-confidence, life-history and so on. But risk preference is my focus. Firstly, improve the method of measure risk preference. The dynamic standard replaces the static one, and it can reflect the changes in different situations. Secondly, contrastive analysis the differences of manufactures bear the inventory risk and retailers bear the inventory risk. And it means a lot for managers to select retailers managed inventory or vendor managed inventory. Thirdly, as the retailer or manufacturer bear inventory risk alone, supply chain can’t reach optimum, this paper brought in the buyback contract to share risk between them, and found that buyback contract improved efficiency of the supply chain, but this was not always happen. That’s to say, managers need to choose retailer bear risk or manufacturer bear risk when buyback contract can’t coordinate the supply chain. Finally, extend the research to the background that demand is price related, and divide demand into two parts, one is price related, and one is random, they multiply or plus. Research how risk preference affect pricing and ordering decisions, and result in inventory decisions. Found that the relationship is more complicated in multiply situation, because the price elasticity of demand also affect it. Use an example to prove that the buyback contract is difficult to coordinate the supply chain. Under the plus situation, the relationship is relatively simple, use examples to improve that buyback contract coordinate the supply chain in many situations, and achieve a Pareto improvement.