Agriculture Supply Chain Optimization Based On Supply And Demand Uncertainty With Government Subsidy Policy

Under the background of random output and random market demand of agriculture, and with the government subsidies for the manufacturer and the retailer, respectively, a one-period two-echelon supply chain optimization consisting of one manufacturer and one retailer is studied. Because of the random output and demand, the paper assume that there are holding costs and penalty costs for both the manufacturer and the retailer. A Stackelberg game between the manufacturer and the retailer is considered, and the existence of Stackelberg equilibrium is derived. The results show that both the manufacturer’s optimal output quantity and the retailer’s optimal order quantity may increase in the government subsidies, and the government subsidy policy can improve the supply chain’s total profit. In addition, we find that both the manufacturer’s optimal output quantity and the retailer’s optimal order quantity may decrease in holding costs, while increase in penalty costs. An interesting finding also shows that, under the reasonable government subsidies and the exogenous parameters, the supply chain can be coordinated with a simple wholesale price contract, which does not happen in traditional cases.It also build a model including a risk compensation mechanism between the manufacturer and the retailer with the government subsidy policy. We consider one scenario where the manufacturer shares the underage risk with the retailer, namely, the manufacturer pays a percentage of profits to the retailer. Therefore, our research findings will also lend new insights into how the risk compensation mechanism contributes to the agriculture supply chain efficiency. We find that if the risk compensation mechanism is not negligible, both the manufacturer’s optimal output quantity and the retailer’s optimal order quantity may increase in the coefficient of the risk compensation. We also compare the results of the government subsidy policy and the risk compensation mechanism and find that under certain conditions, the agriculture supply chain performance can be further improved together with the government subsidy policy and the risk compensation mechanism. In orther words, the risk compensation mechanism can further improve the supply chain’s total profit. Finally, some numerical examples are used to validate the proposed model.