Channel Coordination with a Risk-Neutral Supplier and a Downside-Risk-Averse Retailer

Production & Operations Management, Vol. 14, No. 1, pp. 80-89, 2005

10 Pages Posted: 11 Feb 2008 Last revised: 28 Apr 2008

See all articles by Xianghua Gan

Xianghua Gan

Southwestern University of Finance and Economics (SWUFE) - School of Business Administration

Suresh Sethi

University of Texas at Dallas - Naveen Jindal School of Management

Houmin Yan

The Chinese University of Hong Kong (CUHK) - Department of Systems Engineering & Engineering Management

Abstract

We investigate how a supply chain involving a risk-neutral supplier and a downside-risk-averse retailer can be coordinated with a supply contract. We show that the standard buy-back or revenue-sharing contracts may not coordinate such a channel. Using a definition of coordination of supply chains proposed earlier by the authors, we design a risk-sharing contract that offers the desired downside protection to the retailer, provides respective reservation profits to the agents, and accomplishes channel coordination.

Keywords: supply chain management, coordination, risk sharing, downside risk, value at risk,operations management, risk management

JEL Classification: C61, M11, D81, D83

Suggested Citation

Gan, Xianghua and Sethi, Suresh and Yan, Houmin, Channel Coordination with a Risk-Neutral Supplier and a Downside-Risk-Averse Retailer. Production & Operations Management, Vol. 14, No. 1, pp. 80-89, 2005. Available at SSRN: https://ssrn.com/abstract=1090653

Xianghua Gan

Southwestern University of Finance and Economics (SWUFE) - School of Business Administration ( email )

No.55 Guanghuacun Street
Chengdu, 610074
China

Suresh Sethi (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 W. Campbell Road, SM30
Richardson, TX 75080-3021
United States

Houmin Yan

The Chinese University of Hong Kong (CUHK) - Department of Systems Engineering & Engineering Management ( email )

Shatin, New Territories
Hong Kong

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