Supply Chain Coordination Model with Retailerfs Risk Attitudes

One of the major concerns in supply chain management is the coordination among various members of a supply chain comprising suppliers, manufacturers, distributors, wholesalers and retailers. We consider a newsvendor model in a two level supply chain with one supplier and one retailer. In this model, the retailer must order the item from the supplier prior to the selling season. Due to the short selling season and long replenishment lead time, the retailer is unable to reorder the item by using actual sales data generated from the early part of the season. The purpose of this paper is to discuss the eect of the attitudes toward risk of the members on the coordination in a supply chain. Using the risk averse utility functions, we show that, the risk averse retailer's optimal order quantity is less than or equal to that of a risk neutral one, when the goodwill penalty cost is ignored. We also explore the relationship between the retailer's order quantity and the risk aversion function in a special case.