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Buyback and risk-sharing contracts to mitigate the supply and demand disruption risks

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  • Rita Maria Difrancesco
  • Purushottam Meena
  • Rajendra Tibrewala

Abstract

Events like the recent COVID-19 create major disruptions in global supply chains. Companies find it difficult to manage business continuity under supply uncertainties and disruptions. This paper investigates the buyer's optimal ordering decisions under stochastic demand, supply uncertainty, and disruption risks. We consider a two-echelon supply chain consisting of a single buyer and two suppliers. The main supplier is cheaper, but exposed to the risks of random yield and disruption. The backup supplier is perfectly reliable, but relatively expensive. An analytical model is developed using contract-based mechanisms considering the risks of demand uncertainty, supply disruption, and random yield. Two typologies of contracts with suppliers are considered, namely, risks sharing contract and buyback contract. A numerical study is performed to explore the effects of different parameters on the supply chain members' profits, providing guidelines for managers regarding how the supply chain's risks and demand uncertainty influence the ordering decisions. [Received: 5 November 2019; Accepted: 22 August 2020]

Suggested Citation

  • Rita Maria Difrancesco & Purushottam Meena & Rajendra Tibrewala, 2021. "Buyback and risk-sharing contracts to mitigate the supply and demand disruption risks," European Journal of Industrial Engineering, Inderscience Enterprises Ltd, vol. 15(4), pages 550-581.
    • Handle: RePEc:ids:eujine:v:15:y:2021:i:4:p:550-581
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    Cited by:

    1. Rita Maria Difrancesco & Purushottam Meena & Gopal Kumar, 2023. "How blockchain technology improves sustainable supply chain processes: a practical guide," Operations Management Research, Springer, vol. 16(2), pages 620-641, June.
    2. Wu, Xuanyu & Yang, Min & Liang, Liang, 2024. "Government should be merciful or strict: Penalizing defaulting suppliers in emergency supply chains," Socio-Economic Planning Sciences, Elsevier, vol. 92(C).

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