Coordinating Vulnerable Supply Chains with Option Contracts

Abstract

We investigate vulnerable supply chain coordination with an option contract in the presence of supply chain disruption risk caused by external and internal disturbances. The supply chain consists of a single risk-neutral supplier and a risk-averse retailer. We characterize the retailer’s order quantity decision under the Conditional Value-at-Risk (CVaR) criterion and the supplier’s production decision. The results show that facing disruption risk and risk-aversion, both the retailer and the supplier would be more prudent to order and produce less than the risk-neutral scenario, inducing damage to the supply chain performance. The number of options purchased is decreasing in disruption risk and the risk-aversion of the retailer. The supplier will increase production as the disruption risk decreases or the shortage penalty increases. When the supplier does not know the risk-aversion of the retailer, the former will produce more and bear a higher overstock risk. We also investigate conditions that facilitate vulnerable supply chain coordination and find that the existence of risk-aversion and disruption risk restrict the option price and exercise price to lower price levels. Finally, we compare the option contract with wholesale price contract from the supplier’s and retailer’s perspectives through a numerical study.

An Intelligent Supervision for Supply Chain Finance and Logistics Based on Internet of Things

“…Through observation and analysis, it is not difficult to find that, behind the rapid development of supply chain finance, not only the support of core supply chain enterprises and upstream and downstream customers, but also 3PL companies with perfect systems and standardized operations are needed to serve them, so as to jointly meet the health of supply chain finance. In the face of such a huge market gap and virgin land to be developed, as well as the restrictive factors behind the development of supply chain finance in recent years, it is urgent to study the relevant mechanism of supply chain finance business and find out the implementation process of supply chain finance in 3PL enterprises, marketing methods, risk aversion, and other measures to facilitate the healthy, rapid, and lasting development of supply chain finance [ 10 – 12 ].…”