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MANSCI
2010

Improving Supply Chain Performance and Managing Risk Under Weather-Related Demand Uncertainty

13 years 6 months ago
Improving Supply Chain Performance and Managing Risk Under Weather-Related Demand Uncertainty
This paper considers a manufacturer-retailer supply chain for a seasonal product whose demand is weather-sensitive. The retailer orders from the manufacturer (supplier) prior to the selling season and then sells to the market. We examine how a manufacturer can structure a weather-linked rebate to improve his expected profit. The proposed class of rebate contracts offers several advantages over many other contract structures, including no required verification of leftover inventory and/or markdown amounts, and no adverse effect on sales effort by the retailer. We provide a thorough analysis of the manufacturer’s and retailer’s decisions in this context. We show that the weather-linked rebate can take many different forms, and this flexibility allows the supplier to design contracts that are Pareto-improving and/or limit his risk in offering the contract. For weather rebates with certain characteristics, the manufacturer can fully hedge his risks of offering a weather rebat...
Frank Youhua Chen, Candace Arai Yano
Added 29 Jan 2011
Updated 29 Jan 2011
Type Journal
Year 2010
Where MANSCI
Authors Frank Youhua Chen, Candace Arai Yano
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