Decision on risk share to maximize the supply chain expected profit

Decision on risk share

Abstract

There are many agents in a supply chain, each of them has its uncertainty and risk. A contract between agents could reduce the risk, so in this paper, an insurance contract with three parameters; retailer’s risk share, supplier’s risk share, and the premium transferred between them is considered to maximize the profit for all agents. Three mathematical models were developed for different types of a supply chain, and one thousand initial scenarios were generated in this stochastic programming. A new algorithm was proposed to reduce the number of scenarios to 20. Three models are programmed and solved in MATLAB software. From the numerical examples solved, the results show that when the retailer gives 0.75 of losses from over and under stock, keeping, and salvage cost, the insurance contract has its best performance, and the supply chain has 2.4% extra benefit using it, almost near the maximum profit that is possible.