The Coordination of a Capital-Constrained Supply Chain with a Risk-Averse Retailer

In this article, we study a capital-constrained secondary supply chain consisting of a risk-neutral supplier and a risk-averse retailer. When a supplier provides a trade credit to a retailer, he/she also borrows enough money from the bank to maintain the supply chain. Because retailer's bankruptcy risk tolerance is limited, traditional buy-back contracts and revenue sharing contracts cannot coordinate the entire supply chain. In this case, we redesigned a risk sharing contract based on the initial supply contract. By implementing risk-sharing clause, the retailer's downside risk constraint is satisfied, and the supply chain will achieve coordination again.