Research on Supply Chain Coordination Involving Risk-Averse Agents

Supply chain management seeks to enhance competitive performance by closely integrating supplier, manufacturer and other channel agents. The supply chain agents´ behavior features will be influenced by their attitudes on risk. In this paper, we consider the cooperation contract about a risk-neutral manufacturer as a core enterprise coordinating the downside-risk-averse supplier and retailer in a three-tier supply chain. The mutual influence of risk-controlling and benefit-sharing of supply chain agents is modeled. We show that by designing a risk-sharing contract to the risk-averse supplier and retailer, the manufacturer provides the desired risk protection to the risk-averse agents, the restriction of downside-risk is satisfied and the supply chain achieves coordination. Moreover, the more profits produced by this supply chain cooperation can be allocated arbitrarily according to their bargaining power and reservation profits.