Coordination of Construction Supply Chain Considering Contractor Risk Aversion with Uncertain Demand
In this paper,we establish the decision model for a construction supply chain composed of a risk-averse contractor and a risk-neutral supplier under demand uncertainty and giving consideration of the risk-avoidance behavior of the contractor.The risk-avoidance level of the contractor is quantified using the Conditional Value at Risk(CVaR)method,based on which we discuss the optimal order quantity for the contractor and the optimal pricing for the supplier under the decentralized and centralized decision-making modes respectively and find that the profit of the entire construction supply chain is lower under decentral-ized decision-making than under centralized decision-making.To optimize the overall profit of the construction supply chain under decentralized decision-making,we introduce in the profit-sharing/repurchase contract and the profit-sharing/repurchase/loss-sharing contract to coordinate the supply chain and look at the impact of demand standard deviation,risk aversion coefficient,profit-sharing factor,repurchase price,and loss-sharing coefficient on the decision and profit of the supplier and the contractor.Using a numerical example,we reach the following conclusions:as for the contractor's profit,the profit-sharing/repurchase/loss-sharing contract is superior to the profit-sharing/repurchase contract despite the difference in demand standard deviation;as for the supplier's profit,only given large demand standard devia-tion,that is,when the demand uncertainty is high,is the profit-sharing/repurchase contract superior to the profit-sharing/repurchase/loss-sharing contract;however,in terms of the combined profit for the two par-ties,the profit-sharing/repurchase/loss-sharing contract is always superior to the profit-sharing/repurchase contract at different risk aversion levels.Finally we draw a few management insights,more specifically:(1)The supplier can share risks through contract to reduce the degree of risk avoidance by the contractor,thereby improving the benefits of both par-ties and of the entire supply chain;(2)If the contractor is highly prone to risk avoidance,the supplier can en-courage the contractor to increase order quantity by appropriately increasing the repurchase price or sharing more of the contractor's shortage losses,thereby reducing the risk avoidance tendency of the contractor;(3)The order quantity decision of the contractor should be adjusted based on the degree of risk avoidance of the contractor and the parameters of the contract reached;(4)The contractor can increase its own profit by ap-propriately adjusting the payment it obtains from the project owner,which will,at the same time,increase the profits of the supplier and the entire supply chain;(5)In most cases,the supplier can use a profit-sharing/repurchase/loss-sharing contract to achieve Pareto improvement in the construction supply chain.
construction supply chaindemand uncertaintyrisk aversionconditional risk valuesupply chain coordination
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