Decision Model of Contract-Farming Supply Chain Considering Producer’s Fairness Concerns under Random Yield

Abstract

Supply chain management is critical for addressing uncertainties caused by random demand and production yield. In this study, a random yield supply chain, in which the production process of fresh agricultural products is easily affected by factors, such as weather, soil, or plant diseases and insect pests, was considered. Therefore, the actual output is typically less than the planned output. A model in which the producer faces yield uncertainty was considered, and the influence of the producer’s fairness concerns on the planned output of the contract-farming supply chain was considered. Methods to motivate the producer to increase planned output through reasonable contracts were investigated. The results revealed that the producer’s fairness concern considerably influences the optimal expected profit. In the case of the random output, the planned output and maximum expected profits reduce when the farmer exhibits fairness concerns. As the degree of the producer’s fairness concern increases, the planned output and expected profit gradually decrease The cost-sharing contract can effectively encourage the producer to increase his planned output and expected utility. Finally, the results were verified numerically.