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Robust decision of supply chain with risk aversion under supply uncertainty

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Abstract

The challenge of supply uncertainty widely exists in the practice of supply chain operation decisions. This paper initially introduces supply risk into the robust decision-making framework of risk-averse manufacturers, and the worst-case conditional value-at-risk (WCVaR) criterion is used to characterize manufacturers’ risk-averse behaviors. We then use the mean and variance information of the random supply factor to build a newsvendor model to provide theoretical guidance and reference decisions for risk-averse manufacturers. The results show that the manufacturer’s optimal order quantity depends significantly on risk aversion level, profit margins, and random yield. Compared with risk neutrality, risk-averse preferences drive the order quantity down. The more risk-averse the manufacturer is, the less his order quantity is. By contrast, compared with the case of deterministic yield, yield uncertainty induces the manufacturer to order more products. In addition, the impact of uncertain changes in the random yield factor on order quantity depends mainly on the product’s profit margin and the manufacturer’s risk aversion level. Numerical experiments were conducted to demonstrate our theoretical results.

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Acknowledgements

This work was supported by the National Natural Science Foundation of China (Grant numbers 72172019, 71872021) and the Fundamental Research Funds for the Central Universities (Grant number 2021CDJSKJC11).

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  1. School of Economics and Business Administration, Chongqing University, Chongqing, 400030, China

    Xiaoli Yan & Hui Yu

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  1. Xiaoli Yan
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  2. Hui Yu
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Correspondence to Hui Yu.

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Yan, X., Yu, H. Robust decision of supply chain with risk aversion under supply uncertainty. J Ambient Intell Human Comput 14, 12967–12980 (2023). https://doi.org/10.1007/s12652-022-04244-7

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