scholarly journals Impact of Loss-Aversion on a Financially-Constrained Supply Chain

2019 ◽  
Vol 11 (9) ◽  
pp. 2680
Author(s):  
Jinpyo Lee
Keyword(s):  
Supply Chain ◽  
Interest Rate ◽  
Loss Aversion ◽  
Wholesale Price ◽  
Decision Makers ◽  
Optimal Decision ◽  
Optimal Order ◽  
Order Quantity ◽  
Credit Guarantee ◽  
The Interest Rate

Traditionally, in the area of production and operations management, the financial states and decision-makers’ behaviour regarding loss have been ignored in the supply chain, which may lead to infeasible or unrealistic practices or even catastrophic losses in practical supply chain operations. Therefore, this study aims to provide a model for operational efficiency in a financially constrained supply-chain system consisting of a financially deficient retailer, a supplier, and a bank, and to analyse the impact of the behaviour of the bank and the supplier on the operational decision. It is assumed that the bank provides a loan to the retailer considering the supplier’s credit guarantee for the retailer. The supplier’s credit guarantee implies that, if the retailer goes bankrupt after the sales season, then a pre-guaranteed proportion of the retailer’s loan is repaid by the supplier. Moreover, to capture the decision-makers’ behaviour regarding loss, it is assumed that the supplier and the bank are loss-averse in their risk preference on the final profit. Under this circumstance, it is intended to draw the theoretical implications by analysing a loss-averse behaviour model for a supplier and a bank, in which a kinked piecewise linear and concave utility function is considered. The optimal decision is analytically derived for the retailer (the optimal order quantity), the supplier (the optimal wholesale price), and the bank (the optimal interest rate). In addition, a sensitivity analysis is conducted to investigate how the model parameters affect the optimal decision for the retailer, the supplier, and the bank under different degrees of loss-aversion. The optimal decisions are shown to be highly affected by the degree of the loss-aversion coefficient of the bank and the supplier and to be more conservative than the result in the traditional case which optimises the risk-neutral expected profit (the unit degree of loss-aversion). The analytical results can be summarised as follows. First, as the wholesale price and the interest rate increase, the optimal order quantity decreases. Second, the more loss-averse the supplier is, the higher the optimal wholesale price that is offered to the retailer by the supplier. Third, the larger the credit guarantee that is provided to the retailer by the supplier, the higher the optimal wholesale price that is provided to the retailer. Fourth, the more loss-averse the bank is, the higher the interest rate that is offered to the retailer; and the larger the credit guarantee that is provided by the supplier, the lower the interest rate that is offered to the retailer.

scholarly journals Coping with Loss Aversion and Risk Management in the Supply Chain Coordination

2021 ◽  
Vol 13 (8) ◽  
pp. 4364
Author(s):  
Wei Liu ◽  
Han Zhao ◽  
Shiji Song ◽  
Wenxuan He ◽  
Xiaochen Li
Keyword(s):  
Supply Chain ◽  
Loss Aversion ◽  
Confidence Level ◽  
Wholesale Price ◽  
Revenue Sharing ◽  
Conditional Value At Risk ◽  
Optimal Order ◽  
Order Quantity ◽  
Buyback Contract ◽  
Optimal Order Quantity

In this paper, we apply a combined revenue sharing and buyback contract to investigate the channel coordination of a two-echelon supply chain with a loss-averse retailer. Since loss-averse decision makers usually take on more risks, the Conditional Value-at-Risk (CVaR) measure is introduced to hedge against it and the retailer’s objective is to maximize the CVaR of utility. We obtain the retailer’s optimal order quantity under the combined contract. It is shown that there is a unique wholesale price coordinating the supply chain if the retailer’s confidence level is less than a threshold that is independent of contract parameters. Moreover, a complete sensitivity analysis of parameters is carried out. In particular, the retailer’s optimal order quantity and coordinating wholesale price decreases as the loss aversion or confidence level increases, while it increase as the buyback price or sharing coefficient increases. Furthermore, there exists the situation where the combined contract can coordinate the chain even though neither the revenue sharing nor buyback contract can when the contract parameters are constrained.

scholarly journals Trade Credit with Barter in a Capital-Constrained Supply Chain

2021 ◽  
Vol 13 (20) ◽  
pp. 11361
Author(s):  
Yangyang Huang ◽  
Zhenyang Pi ◽  
Weiguo Fang
Keyword(s):  
Supply Chain ◽  
Trade Credit ◽  
Wholesale Price ◽  
Uncertain Demand ◽  
Equilibrium Strategy ◽  
Optimal Order ◽  
Order Quantity ◽  
Supply Rate ◽  
Optimal Order Quantity ◽  
And Performance

Barter has emerged to alleviate capital pressure, maximize the circulation of goods, and facilitate the disposal of excess inventory. This study considers a two-level supply chain consisting of a manufacturer and a capital-constrained retailer with trade credit, in which the retailer exchanges unsold products for needed subsidiary products on a barter platform. The retailer’s optimal order quantity and the manufacturer’s wholesale price are derived, and the influences of barter and other factors on the equilibrium strategy and performance of the supply chain are examined; these results are verified and supplemented by numerical simulation. We find that the retailer can increase profit by bartering when facing highly uncertain demand, that the retailer’s optimal order quantity increases with the supply rate and demand for subsidiary products, and that both manufacturer and retailer benefit from the high supply rate of subsidiary products. However, barter induces the manufacturer to raise the wholesale price to prevent its profit from being harmed. In addition, the manufacturer suffers from the retailer’s initial capital.

scholarly journals Supply Chain Coordination with a Loss-Averse Retailer and Combined Contract

Mathematics ◽  
2020 ◽  
Vol 8 (4) ◽  
pp. 586
Author(s):  
Wei Liu ◽  
Shiji Song ◽  
Ying Qiao ◽  
Han Zhao
Keyword(s):  
Supply Chain ◽  
Loss Aversion ◽  
Value At Risk ◽  
Supply Chain Coordination ◽  
Wholesale Price ◽  
Conditional Value At Risk ◽  
Optimal Order ◽  
Confidence Levels ◽  
Quantity Flexibility ◽  
Quantity Flexibility Contract

This paper studies the supply chain coordination where the retailer is loss-averse, and a combined buyback and quantity flexibility contract is introduced. The loss-averse retailer’s objective is to maximize the Conditional Value-at-Risk of utility. It is shown the combined contract can coordinate the chain and a unique coordinating wholesale price exists if the confidence level is below a threshold. Moreover, the retailer’s optimal order quantity, expected utility and coordinating wholesale price are decreasing in loss aversion and confidence levels, respectively. We also find that when the contract parameters are restricted, the combined contract may coordinate the supply chain even though neither of its component contracts coordinate the chain.

scholarly journals Optimal Decision of Deferred Payment Supply Chain considering Bilateral Risk-Aversion Degree

2018 ◽  
Vol 2018 ◽  
pp. 1-11 ◽  
Author(s):  
Liu Liang ◽  
Li Futou
Keyword(s):  
Supply Chain ◽  
Risk Aversion ◽  
Wholesale Price ◽  
Conditional Value At Risk ◽  
Optimal Order ◽  
Risk Averse ◽  
Order Quantity ◽  
Initial Capital ◽  
Optimal Order Quantity ◽  
Degree Of Risk

This paper aims to fill up the gap that the previous research has never explored, the deferred payment supply chain with a risk-averse supplier. To this end, the conditional value-at-risk (CVaR) was adopted as a criterion to measure the influence of retailer’s deferred payment on supply chain performance. According to this criterion, the retailer’s optimal order quantity and the supplier’s optimal wholesale price per unit product were investigated under decentralized decision-making. Then, the existence of a unique optimal strategy was discussed for risk-averse supplier and retailer, and the values of risk-averse, initial capital, and wholesale price were calculated in detail. Finally, the theoretical results were testified through a numerical example. It is concluded that retailer’s optimal order quantity is negatively correlated with the wholesale price, initial capital, and degree of risk aversion, so that the retailer can benefit through proper risk aversion; the supplier’s expected profit decreases with the increase in the degree of risk aversion, yet the optimal wholesale price is determined by the degree of risk aversion of supplier and retailer. The research findings shed valuable new light on how to manage a supply chain involving risk-averse supplier and retailer.

scholarly journals The role of voucher sale in advance for a capital-constrained supply chain

2021 ◽  
Author(s):  
Haijun Wang ◽  
Guanmei Liu
Keyword(s):  
Supply Chain ◽  
Trade Credit ◽  
Stackelberg Game ◽  
Wholesale Price ◽  
Optimal Choice ◽  
Bank Loan ◽  
Optimal Decision ◽  
Order Quantity ◽  
Credit Financing ◽  
The Impact

This paper studies voucher sale as an operational method to raise working capital for a supply chain, which consists of a supplier and a capital-constrained retailer. The retailer takes advantage of an online platform to sell vouchers and to get access to borrowing from a bank. By formulating a Stackelberg game model, we show the retailer's possible order quantities in the cases without and with bank loan and analyze the impact of voucher sale on the retailer's optimal choice of order quantity and the supplier's optimal wholesale price. We find that a smaller voucher's price induces the retailer to be more likely to order with loan from a bank while a larger voucher's value induces an order quantity with the loan more difficult to be repaid. In addition, if voucher's price is large, the supplier decides a wholesale price which leads the retailer not to borrow from a bank; and if voucher's price is small, the supplier's optimal decision is obtained by anticipating the retailer to borrow from a bank. We also analyze the impact of voucher sale in the presence of trade credit financing on the firms' decisions. The results show that the voucher's price should be small so that the retailer can repay the supplier if voucher's value is large; otherwise, the retailer either does not borrow from the supplier or may not repay the supplier. Besides, the supplier decides a wholesale price so that the retailer does not borrow or can repay the supplier, except that the voucher's value is large and the voucher's price is medium.

scholarly journals A financing model with rebate contract  in a capital-constrained supply chain

2020 ◽  
Author(s):  
Jizhou Zhan
Keyword(s):  
Supply Chain ◽  
Wholesale Price ◽  
Bank Credit ◽  
Optimal Order ◽  
Order Quantity ◽  
Bank Financing ◽  
Marginal Production ◽  
Financing Model ◽  
Rebate Contract ◽  
Opposite Tendency

In a two-level supply chain that includes one supplier and one capital-constrained retailer, this paper investigates a new bank financing model (Model N), in which, the supplier requires the retailer to order a quantity that is not less than a specified minimum ordering quantity (MOQ), rebates the per unit excess that sells over the MOQ, and promises to provide a partial warranty for the bank credit risk if the revenue is below the bankruptcy level of the retailer with the MOQ. This study shows that retailer's optimal order quantity increases with MOQ level and decreases with rebate rate, while supplier's optimal wholesale price shows an opposite tendency. Compared to the traditional bank financing model (Model T), the model N with an appropriate rebate contract will result in a larger order quantity of retailer. Furthermore, model N would benefit the entire supply chain and a Pareto zone of MOQ (or rebate rate) exists, in which, model N outperforms model T for each player. The numerical experiments are performed to illustrate that with increasing the marginal production cost of supplier, the MOQ level is decreasing while rebate rate is increasing in the Pareto zone.

scholarly journals Coordination of a Random Yield Supply Chain with a Loss-Averse Supplier

2015 ◽  
Vol 2015 ◽  
pp. 1-11 ◽  
Author(s):  
Jiarong Luo ◽  
Xu Chen
Keyword(s):  
Supply Chain ◽  
Loss Aversion ◽  
Optimal Order ◽  
Random Yield ◽  
Order Quantity ◽  
Optimal Production ◽  
Numerical Examples ◽  
Risk Neutral ◽  
Production Quantity ◽  
Optimal Order Quantity

This paper investigates the coordination of a supply chain consisting of a loss-averse supplier and a risk-neutral buyer who orders products from the supplier who suffers from random yield to meet a deterministic demand. We derive the risk-neutral buyer’s optimal order policy and the loss-averse supplier’s optimal production policy under shortage-penalty-surplus-subsidy (SPSS) contracts. We also analyze the impacts of loss aversion on the loss-averse supplier’s production decision making and find that the loss-averse supplier may produce less than, equal to, or more than the risk-neutral supplier. Then, we provide explicit conditions on which the random yield supply chain with a loss-averse supplier can be coordinated under SPSS contracts. Finally, adopting numerical examples, we find that when the shortage penalty is low, the buyer’s optimal order quantity will increase, while the supplier’s optimal production quantity will first decrease and then increase as the loss aversion level increases. When the shortage penalty is high, the buyer’s optimal order quantity will decrease but the supplier’s optimal production quantity will always increase as the loss aversion level increases. Furthermore, the numerical examples provide strong evidence for the view that SPSS contracts can effectively improve the performance of the whole supply chain.

scholarly journals Optimal ordering decisions in mass customization supply chain with overconfident retailer

2021 ◽  
Author(s):  
Bayi Cheng ◽  
Ruofan Li ◽  
Xiaoxi Zhu ◽  
Mi Zhou ◽  
Xiongfei Cao
Keyword(s):  
Supply Chain ◽  
Mass Customization ◽  
Decision Makers ◽  
Optimal Order ◽  
Market Demand ◽  
Order Quantity ◽  
Optimal Decisions ◽  
Modular Production ◽  
Optimal Ordering ◽  
The Relationship

In this paper, we analyze the optimal order-quantity decisions in a supply chain with mass customization (MC) manufacturer and overconfident retailer. First, we consider a newsvendor model in which an unbiased retailer sells mass customized products. The retailer needs to make order quantity decisions before the selling season. Meanwhile, the supplier is a mass customization manufacturer and implements modular production. The supply process is uncertain, as the real quantity the retailer received is the order quantity multiplied by a random yield rate. Second, two overconfident models are considered and theorems are proposed. In the first model, the behavioral bias of overconfidence only affects the retailer's judgment of variance of market demand. In the second model, the behavior bias of overconfidence affects not only the retailer's cognition of the variance of market demand, but also his cognition of the expectation of market demand. In addition, the relationship between the optimal decisions and the modularity level is obtained. Finally, we provide managerial insights for the decision makers of the retailers and the manufacturers on order quantity and modularity level, respectively.

Decision-Making on the Supply Chain of Fresh Agricultural Products with Two-Period Price and Option Contract

2020 ◽  
pp. 2050038
Author(s):  
Bo Yan ◽  
Gaodi Liu ◽  
Xiaohua Wu ◽  
Jiwen Wu
Keyword(s):  
Decision Making ◽  
Supply Chain ◽  
Wholesale Price ◽  
Agricultural Products ◽  
Optimal Decision ◽  
Optimal Order ◽  
Agricultural Product ◽  
Fixed Cost ◽  
Option Contract ◽  
Decentralized Decision Making

The price risk of fresh agricultural products has been a significant topic in recent years. Taking the two-level fresh agricultural product supply chain as the research object, this paper studies the optimal ordering and coordination of supply chain based on two-period price, wholesale price and option contract. The optimal order decision of the retailer at the single period price and the optimal decision corresponding to the supplier are obtained when the output of the supplier is uncertain under decentralized decision-making. The range of penalty cost parameter that avoids supplier default is also obtained. The effect of two-period price on the optimal order decision and supply chain profits is discussed when the production yield of the supplier is fixed. Cost-sharing contract is introduced to increase the order quantity and achieve coordination because the option contract cannot completely make the supply chain coordination with two-period price. This paper provides a low-cost approach that can be applied in fresh agricultural supply chain to solve financing and order problems.

Advertising and Pricing Policies in a Two-Echelon Supply Chain with a Capital-Constrained Retailer

2019 ◽  
Vol 53 (4) ◽  
pp. 1331-1342
Author(s):  
Honglin Yang ◽  
Lingling Chu ◽  
Hong Wan
Keyword(s):  
Supply Chain ◽  
Interest Rate ◽  
Trade Credit ◽  
Wholesale Price ◽  
Retail Price ◽  
Stackelberg Equilibrium ◽  
Initial Capital ◽  
Pricing Policies ◽  
The Interest Rate ◽  
Theoretical Results

We consider a two-echelon supply chain consisting of one supplier and one capital-constrained retailer. The supplier can offer the retailer trade credit to fund his orders. To boost sales, the retailer invests part or all of initial capital exclusively in advertising at the beginning of the sales season. Demand is sensitive to both retail price and advertising expenses of the retailer. With a wholesale price contract, we analytically derive the Stackelberg equilibrium with respect to pricing by both parties and advertising by the retailer. Our results show that the retailer with less initial capital prefers to invest full initial capital in advertising irrespective of the advertising elasticity or the interest rate charged by the supplier. The retailer with more initial capital only invests part of initial capital in advertising. The retailer’s advertising policy under different initial capital levels always benefits the supply chain and the supplier. We further identify the effects of the advertising elasticity and the interest rate on the pricing policies. Numerical simulations and sensitivity analysis are given to elaborate our theoretical results.

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