Flexibility and coordination in a supply chain with bidirectional option contracts and service requirement

Chen, Xu; Wan, Nana; Wang, Xiaojun

doi:10.1016/j.ijpe.2017.07.013

Cited by 62 publications

(43 citation statements)

References 23 publications

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“…As an extension of Wang and Tsao [39], Zhao et al [40] consider the ordering and coordination problem of a supply chain that faces stochastic demand in the presence of bidirectional option contracts. Chen et al [42] study the impact of bidirectional option contracts and service level constraints on the decisions and performances of a supplier-retailer supply chain.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Therefore, more complex scenario can be considered in the future. Our study considers the retailerled supply chain; other market power supply chains, such as manufacturer-led supply chain [41,42] or vertical Nash supply chain [49], can be taken into consideration in the future. Finally, there is only one decision variable in our model.…”

Section: Conclusion and Further Researchmentioning

confidence: 99%

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Multiperiod Production and Ordering Policies for a Retailer-Led Supply Chain through Option Contracts

Wan

Chen

2018

Mathematical Problems in Engineering

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This paper formulates two groups of multiperiod production and ordering models with call and bidirectional option contracts for a two-party supply chain consisting of one followed supplier and one dominant retailer, respectively. Based on dynamic programming theory, we characterize the optimal policy structures for two partners in each period. We also provide an approximation for the corresponding policy parameters evaluation in two cases. Then, we investigate the impacts of different option contracts and the demand risk on the decisions and performances of two members. Our results suggest that, whether concerning call or bidirectional option contracts, the optimal policies for two members always follow a base stock type. When the price parameters are the same for different option contracts, the service levels of both the system and the retailer are higher with call option contracts than with bidirectional ones, whereas the retailer's inventory risk is lower with bidirectional option contracts than with call ones. Under the same conditions stated above, call option contracts can always benefit the supplier, but not the retailer. Owing to the retailer's dominant position, call option contracts are better choice for the supply chain if the option (exercise) price is low (high), while bidirectional option contracts are more suitable choice for the supply chain if the option (exercise) price is high (low). In addition, an increase in the demand risk would prompt the supplier to increase his production quantity and the retailer to reduce the initial firm order quantity, either with call or bidirectional option contracts.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Conclusion and Further Researchmentioning

confidence: 99%

Multiperiod Production and Ordering Policies for a Retailer-Led Supply Chain through Option Contracts

Wan

Chen

2018

Mathematical Problems in Engineering

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“…In the paper of Cai et al (2017), an option contract was introduced to coordinate a vendor-managed inventory (VMI) supply chain under yield uncertainty. Chen et al (2017) studied coordination in a two-echelon supply chain consisting of a supplier and a retailer with bidirectional option contracts and service requirement.…”

Section: Literature Reviewmentioning

confidence: 99%

An American option contract toward supply chain coordination

Rabbani¹,

Manavizadeh²,

Arani³

et al. 2018

10.5267/j.dsl

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Coordination improves the profit of all the members in a supply chain. In this paper, a novel coordination mechanism is introduced in a retailer-manufacturer supply chain in which the retailer can adopt either an American option mechanism or a wholesale mechanism to satisfy the market demand throughout a multi-period horizon. The manufacturer follows a make-toorder production policy. This mechanism gives the retailer the right to select the more beneficial mechanism in each period. The retailer as the leader of the chain decides how many options should be purchased at the beginning of the horizon through a mixed-integer mathematical model. This model addresses the uncertainties in the market demand and the market price, simultaneously. A scenario planning approach is used to treat the random variables within the model. Also, an optimal scenario reduction model is adapted to reduce the computational complexity of the problem. Finally, a numerical experiment is designed to validate the performance of the model. The results demonstrate a remarkable improvement in the profit of both members. Moreover, a number of experiments are performed to show how the option price, the exercise price and the interest rate affect the performance of the contract. .

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“…A spectrum of flexibility contracts have been demonstrated as incentive mechanisms for coordinating the agents' decisions and improving the profit of all supply chain parties [8,9]. One of the most popular contracts is the option contract which is derivated from the real option in financial field [7,10,11].…”

Section: Introductionmentioning

confidence: 99%

Multisources Risk Management in a Supply Chain under Option Contracts

Luo

Zhang

Jiang

2019

Mathematical Problems in Engineering

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Uncertainties in product demand, component yield, and spot price are keys to many industrial settings and they are usually explicitly incorporated. This paper develops an analytical framework to value option contracts in hedging the risks in a supply chain consisting of a component supplier with random yield and a manufacturer facing stochastic demand for end products. The manufacturer can obtain the components from the supplier through firm order contracts and option contracts. Apart from the contract market, there is a spot market in which both the manufacturer and the supplier can buy or sell the components. Analytical expressions for the optimal ordering and production policies are derived. Our study shows that the manufacturer and the supplier can effectively deal with the risks they involve by adopting option contracts. However, we find that the supply chain cannot be coordinated by the traditional option contract. To coordinate such system, we propose a protocol to be combined with the option contract. Finally, the explicit condition for coordination under the proposed contracts is identified.

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Flexibility and coordination in a supply chain with bidirectional option contracts and service requirement

Cited by 62 publications

References 23 publications

Multiperiod Production and Ordering Policies for a Retailer-Led Supply Chain through Option Contracts

Multiperiod Production and Ordering Policies for a Retailer-Led Supply Chain through Option Contracts

An American option contract toward supply chain coordination

Multisources Risk Management in a Supply Chain under Option Contracts

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