Risk analysis of a two-level supply chain subject to misplaced inventory

Lijing Zhu, Chul Ung Lee

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

Misplaced inventory is prevalent in retail stores and may lead to the overall poor performance of the supply chain. We explore the impact of misplaced inventory on a two-level supply chain, which consists of a risk-neutral supplier and a risk-averse retailer. The supplier decides the wholesale price to maximize her profit, whereas the retailer decides the order quantity to maximize his utility. Under the Conditional Value-at-Risk (CVaR) criterion, we formulate the problem as a Stackelberg game model and obtain the equilibrium solutions in three cases: (i) information asymmetry about inventory errors exists; (ii) the retailer shares information about inventory errors with the supplier; and (iii) in order to reduce misplaced inventory, the supply chain deploys Radio-Frequency Identification (RFID) technology. The benefits of information sharing and RFID implementation are explored. A revenue and cost sharing contract is proposed to coordinate the supply chain and to allocate the cost savings from RFID implementation among supply chain participants. Finally, we provide managerial insights for risk-averse decision makers that are considering investing in the RFID technology.

Original languageEnglish
Article number676
JournalApplied Sciences (Switzerland)
Volume7
Issue number7
DOIs
Publication statusPublished - 2017 Jun 30

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Keywords

  • CVaR
  • Misplaced inventory
  • RFID
  • Risk aversion
  • Supply chain coordination

ASJC Scopus subject areas

  • Applied Mathematics

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