Fairness in profit allocation in a coordinated supply chain

The coordination of supply chains using different modelling techniques has received considerable attention in the literature. However, limited research has been carried out considering the issue of the fair allocation of derived profit and risk. Usually, the allocation is arbitrarily left with bargaining power of the members. Recently, some research has empirically shown problems in coordinated supply chains in the absence of proper fair allocation mechanisms. Very few models of fairness have been proposed in the context of supply chain coordination. However, these models did not consider the effects of loss of efficiency due to its emphasis on fairness. Therefore, there is a need to propose a model of fairness for the equitable allocation of risks and benefits while achieving the supply chain coordination. This research proposes a model a model to maximize the utilities of the members of a buyer-seller supply chain with consideration of fairness in a project environment. Nash’s bargaining model is used to maximize the products of the two utilities. The proposed research extends the existing models by including constraints such as: constraints of bargaining power and minimizing the loss of efficiency due to fairness.