Coordination contracts for supply chain considering supply disruption and loss aversion

It is supposed that demand is affected by the level of supplier innovation input. In the two-level supply chain consisting of two manufacturers and one retailer, the coordination of the supply chain was studied by considering supplier supply disruption risk and retailer loss aversion. The optimal strategies and coordination of supply chain were analyzed under the decentralized decision-making and the centralized decision-making respectively; meanwhile, the influence of innovation input and order quantity on supply chain collaboration was presented. The supply chain coordination contract model was constructed based on the option contract coordination with innovation investment sharing. The results show the supplier innovation input level strictly increases with retailer’s order quantity, and the retailer’s order quantity strictly increases with the supplier’s innovation input level. Supply chain can be coordinated while the option order price, option exercise price and innovation investment sharing ratio meet certain conditions. Finally, numerical examples were used to verify the effectiveness of the model. The impacts of the changes of the parameters in the model on the optimal strategies were revealed, and the parameters include loss aversion and supply disruption risk. Through the analysis, the relationship between contract coordination parameters and the profit distribution mode of supply chain under different combinations of contract parameters were shown. © 2020, Central South University Press. All rights reserved.