Profit Maximization of a Supply Chain with Uncertain Demands Taking into Account Risk Attitude of a Manager

—Fractile Model Approach

Abstract

In this paper, assuming that disruptions in a supply chain result from uncertain demands, we formulate a profit maximization problem of the supply chain as a two-stage model with the decisions on facility opening at the first stage and the decisions on material flows at the second stage after realization of the demands. For such the decision problem in the supply chain, we present a formulation based on the fractile model taking into account the risk attitude of a supply chain manager. We verify the effectiveness of the proposed model by solving problems with different volatilities on the demand data.