Copyright © 2013 Fei Hu et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
This paper studies the coordination issue of a supply chain consisting of one retailer and two suppliers, a main supplier and a backup supplier. The main supplier’s yield is subject to disruption and the retailer faces a random demand. We determine the retailer’s optimal ordering policy and the main supplier’s production quantity that maximize expected profit of the centralized supply chain. We also analyze the decentralized scenario, and a combination of overproduction risk sharing and buy-back contracts with a side payment from/to the backup supplier is provided to coordinate the supply chain. Numerical examples are given to gain some qualitative insights.