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

Authors: Rita Maria Difrancesco; Purushottam Meena; Rajendra Tibrewala

Addresses: EADA Business School Barcelona, Carrer d'Aragó 204, 08011 Barcelona, Spain ' School of Management, New York Institute of Technology, Northern Boulevard, P.O. Box 8000, Old Westbury, NY, USA ' School of Management, New York Institute of Technology, Northern Boulevard, P.O. Box 8000, Old Westbury, NY, USA

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]

Keywords: supply disruption; COVID-19; random yield; demand uncertainty; buyback contract; ordering policy; risk-sharing contracts.

DOI: 10.1504/EJIE.2021.116140

European Journal of Industrial Engineering, 2021 Vol.15 No.4, pp.550 - 581

Received: 05 Nov 2019
Accepted: 22 Aug 2020
Published online: 12 Jul 2021 *

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