Effect of disruption risk on a supply chain with price-dependent demand

Min Li; Jiahua Zhang; Yifan Xu; Wei Wang

doi:10.3934/jimo.2019095

Article Contents

2020, Volume 16, Issue 6: 3083-3103. Doi: 10.3934/jimo.2019095

This issue Previous Article Mean-CVaR portfolio selection model with ambiguity in distribution and attitude Next Article

Effect of disruption risk on a supply chain with price-dependent demand

1.
Department of Mathematics, East China University of Science and Technology, Shanghai 200237, China
2.
The School of Management and Economics, The Chinese University of Hong Kong, Shenzhen 518172, China
3.
School of Management, Fudan University, Shanghai 200433, China

^* Corresponding author: Wei Wang
^* Corresponding author: Wei Wang

Received: November 30, 2018

Revised: February 28, 2019

Early access: July 2019

Published: October 2020

This work is supported by National Nature Science Foundation of China (No.71531005)

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Abstract

Supply chain disruption management has been a hot issue for a long time. This paper studies a supply chain consisting of two suppliers and a retailer. The suppliers may have correlated disruption risks and they choose their respective wholesale price. The retailer's demand is selling price-dependent. In a scenario of ex-ante pricing scheme, i.e., the retailer chooses selling price before the suppliers' disruption is resolved, we find that the disruption correlation affects the supply chain members' profits in a nonmonotonic way. In a scenario of responsive pricing scheme, i.e., the retailer chooses selling price after the suppliers' disruption is resolved, we show that when the suppliers' disruption correlation becomes stronger, the suppliers' profit will decrease while the retailer's profit will increase. Moreover, the retailer always earns a higher profit under the responsive pricing scheme than under the ex-ante pricing scheme. In an extension, we show that the suppliers' disruption correlations affects the supply chain members' profits in a similar way if the supply chain has two competitive retailers. However, in this extension, if the suppliers' disruption correlation is low, the retailers' profit is higher under the responsive pricing scheme; otherwise, the retailers' profit is higher under the ex-ante pricing scheme.

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Mathematics Subject Classification: 91A06, 91A10.

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Figure 1. Influence of the default correlation under the ex-ante pricing scheme of the single retailer

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Figure 2. Ex-ante pricing scheme vs. responsive pricing scheme in the basic model

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Figure 3. Influence of the default correlation under the ex-ante pricing scheme of the two retailers

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Figure 4. Impact of the demand sensitivity under the ex-ante pricing scheme of the two retailers

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Figure 5. Impact of the demand sensitivity under the responsive pricing scheme of the two retailers

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Figure 6. Ex-ante pricing scheme vs. responsive pricing scheme in the model of the two retailers

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