Research On Three-echelon Supply Chain Coordination Using Combined Contracts Under Stochastic Supply And Demand

Supply chain coordination is an important part of supply chain management. The purpose of supply chain coordination is that the optimal profit of the whole supply chain can be achieved. The most common method in coordinating supply chain is using contracts. With the contracts, the participants are stimulated to make the appropriate decisions to achieve the optimal profit of the whole supply chain. In traditional supply chain management theories the participants are usually assumed to be entirely rational "economic men", however, human behavior may greatly affect the optimal decision. Human behavioral factors, such as fairness preference and risk preference, result in that people do not always persue the optimal profit in behavior. Behavioral factors should be considered in the modeling process. It can be better to explain the practical decision-making situation.Firstly, based on the stochastic supply and demand background, for a three-echelon supply chain made by a supplier, a manufacturer and a retailer, centralized and decentralized models were established with expected profit maximization as the goal. Comparing the obtained equilibrium solution, the study found that decentralized decisions were not coordinated. Secondly, the coordinative models with buyback contract and combined contracts were established. The optimal decisions were achieved. Through numeral analysis it is found that using only the buyback contract had its limitation, and that the combined contracts could make the supply chain to achieve perfect coordination. Then, by introducing fairness preference, utility function is established to model the decision-making in the three-echelon supply chain coordination with the combined contracts under stochastic supply and demand when the supplier, manufacturer and retailer all had fairness preference. The study found that fairness preference would impact the parameters of combined contracts, also the participant decisions. Finally, the study found that as the fairness preference degree was higher, its influence on utility was larger by a numeral example.