Cordination of VMI Supply Chain on the Base of Loss Aversion and Replenishment

Numerous studies have demonstrated that implementing replenishment strategies can reduce shortage costs, and the presence of loss-averse behavior can also impact decision-making within enterprises. Both the choice of replenishment strategy and the manifestation of loss-averse behavior ultimately influence the level of coordination within supply chains. Replenishment strategy has been overlooked in most existing studies on supply chain coordination with loss aversion. This paper, however, employs the psychological account separation method to depict the loss-averse behavior of a supplier in a two-level Vendor Managed Inventory (VMI) supply chain, consisting of a loss-averse supplier and a risk-neutral retailer. To investigate the impact of supplier's loss aversion behavior on supply chain coordination, this study constructs supply chain coordination models under risk diversification contract, option contract and subsidy contract respectively. The research indicates that the aforementioned three types of coordination contracts are capable of driving the supply chain towards a state of coordination and achieving Pareto improvement. In comparison to option and subsidy contracts, suppliers show a greater preference for risk diversification contracts. If the supplier exhibits a high degree of loss aversion, option contracts and subsidy contracts will not be utilized for supply chain coordination. The findings contribute to the enhancement of VMI supply chain coordination management methods.