Risk Based Product Selection in a Central Kitchen Supply Chain

Abstract

In a certain food consumption market, a central kitchen and a retailer form a decentralized supply chain. As the demand is uncertain, the investment on the central kitchen project is under financial risks. For risk reduction of the supply chain, we investigate product portfolio selection of the central kitchen project. Firstly, in two scenarios of the supply chain: coordination and non-coordination, mathematical modeling is used to analyze price decisions of the retailers with respect to different quality products provided by the central kitchen. Secondly, we develop the product portfolio selection model, where the goal is to minimize the risk under certain conditions. Finally, a numerical example is used to illustrate the impact of bargaining power of the central kitchen on the risk taking, industry quality, profit and consumer surplus. The results show that the supply chain coordination can produce high industry quality, low risk and low profit.