27 / 2024-04-15 07:03:45

Risk Sharing in a Two-Level Supply Chain with Variable Capacity and Random Yield

Variable Capacity; Random Yield; Risk Sharing; Decentralized Supply Chain

Research on production uncertainty is crucial in today’s complex and interconnected business environment, as supply chains contend with numerous uncertainties, including demand fluctuations and supplier disruptions, significantly affecting their operations. This study is based on three centralized supply chains and three decentralized supply chains, and investigates two types of production uncertainty: Variable Capacity (VC) and Random Yield (RY), examining their impacts on supply capability, relationships among supply chain members, decision-making behaviors, and overall performance. RY, often resulting from imperfect processes, is predictable and measurable, unlike VC, which is triggered by entirely random factors such as unforeseen interruptions and unplanned maintenance, rendering it uncontrollable. Our findings reveal that centralized models are predominantly influenced by RY due to its predictability, enabling manufacturers to adjust their production strategies accordingly. In contrast, the unpredictable nature of VC, stemming from external shocks, is frequently disregarded in decision-making. In the absence of risk-sharing, RY primarily affects manufacturers, with VC having a minimal impact. However, RY influences manufacturers’ production decisions, while retailers’ ordering strategies consider both types of uncertainty. In response to production uncertainties, manufacturers adapt to RY’s predictability within supply chains, whereas retailers modify their ordering practices to mitigate risks arising from both supply and demand uncertainties. These insights underscore the distinct impacts of production uncertainties on supply chain entities and highlight management practices for addressing these challenges.