Production disruption in supply chain systems: impacts on consumers, supply chain agents and the society

Production disruptions in supply chain systems affect all supply chain members and lead to problems such as the ripple effect. As observed from practice that the production disruption, which is caused by labor strike, natural disaster or equipment breakdown, occurs frequently and the manufacturer has to consider this seriously so as to control the risk. In this paper, we study the problem by examining the impacts on the consumer, supply chain agents and society brought by production disruptions. We explore the different parameters influences on the optimal decisions of retail price and the profit of supply chain agents as well as the profit variance. We also further extend the model by making wholesale price or penalty fee fixed, and find that the profit will not be affectted by both of wholesale price and penalty fee. However, the wholesale price (penalty fee) will affect the profit variance of the supply chain agents. The findings imply that for risk neutral supply chain agents, wholesale price (penalty fee) is not the core factor for them, but it is crucial for the risk averse or risk seeking supply chain agents. We think this paper fills the gap by examining the profit risk in a supply chain facing production disruptions and also the impacts on consumer surplus and society.