Acta Mathematica Scientia 2006,26B(4):655–669 www.wipm.ac.cn/publish/ DISRUPTION MANAGEMENT FOR SUPPLY CHAIN COORDINATION WITH EXPONENTIAL DEMAND FUNCTION∗

Abstract The coordination problem of a supply chain comprising one supplier and one retailer under market demand disruption is studied in this article. A novel exponential demand function is adopted, and the penalty cost is introduced explicitly to capture the deviation production cost caused by the market demand disruption. The optimal strategies are obtained for different disruption scale under the centralized mode. For the decentralized mode, it is proved that the supply chain can be fully coordinated by adjusting the price discount policy appropriately when disruption occurs. Furthermore, the authors point out that similar results can be established for more general demand functions that represent different market circumstances if certain assumptions are satisfied. Key words Supply chain coordination, disruption management, real-time optimization, production and pricing 2000 MR Subject Classification 90B30