Coordination of a supply chain with one-manufacturer and two-retailers under demand promotion and disruption management decisions

In this paper, we introduce a supply chain coordination model in which there are one manufacturer and two competing retailers. We study the coordination of the supply chain with demand disruptions and consider a price-subsidy rate contract to coordinate the investments of the competing retailers with sales promotion opportunities and demand disruptions. We find that an appropriate contractual arrangement can fully coordinate the supply chain and the manufacturer can achieve a desired allocation of the total channel profit by varying the unit wholesale price and the subsidy rate. When demand is disrupted, a production deviation cost results in a coordination contract differing from that without disruption. We also find that the central decision maker or the manufacturer needs to change the production quantity only when the investment sensitivity coefficient has a large enough change, but the optimal investment for the centralized supply chain differs with and without disruption. We also analyze the results by conducting a numerical simulation.