Coordinating a supply chain with backup supplier through buyback contract under supply disruption and uncertain demand

Abstract

This paper develops a supply chain model consisting of a single supplier and a single retailer. The market demand is assumed to be stochastic and the supplier is prone to disruption. The centralised model is provided as benchmark, and non-coordinated model is studied with the wholesale price-only contract. To enhance the total expected profit, we apply buyback contract and show that the chain may be coordinated thorough this contract, although the chain is vulnerable to disruption. To mitigate the effect of disruption, we further propose a backup supplier to be involved in the chain. We show that the backup supplier substantially enhances the profit of the retailer when there is no coordination between the primary supplier and the retailer. Furthermore, if the retailer is allowed to coordinate with the primary supplier, we show that the coordination remains effective for certain range of disruption probability and collapses thereafter. Numerical examples are given to illustrate the developed model.

Keywords:

• supply chain
• stochastic demand
• supply disruption
• buyback contract
• backup supplier

Acknowledgements

The authors are thankful to the anonymous referees for their comments and constructive suggestions which have improved the quality of the paper.

Additional information

Funding

The research of the second author is funded by the University Grants Commission, New Delhi, India [vide 20-6/2009 (i) EU-IV].

Notes on contributors

B.C. Giri

B.C. Giri is an associate professor in the Department of Mathematics, Jadavpur University, Kolkata, India. He did his MS degree in mathematics and PhD in operations research both from Jadavpur University, Kolkata, India. His research interests include inventory/SC management, production planning and scheduling, reliability and maintenance, and his research papers have appeared in Naval Research Logistics, International Journal of Production Research, Omega, Journal of the Operational Research Society, European Journal of Operational Research, International Journal of Production Economics, International Journal of Systems Science, Optimization Letters and other journals. He was a JSPS Research Fellow at Hiroshima University, Japan during the period 2002–2004, Humboldt Research Fellow at Mannheim University, Germany during the period 2007–2008 and a Fulbright Senior Research Fellow at Louisiana State University, USA in the year 2012.

S. Bardhan

S. Bardhan is a senior research fellow in the Department of Mathematics, Jadavpur University. He did his BS and MS degrees in mathematics both from Jadavpur University. He is working in the field of operations research. He is particularly interested in dealing with coordination issues in SC management. He has research papers published in International Transactions in Operational Research, Journal of Systems Science and Systems Engineering, International Journal of Systems Science International Journal of Operational Research.