Outsource planning through option contracts with demand and cost uncertainty

Nosoohi, Iman; Nookabadi, Ali Shahandeh

doi:10.1016/j.ejor.2015.10.030

Cited by 47 publications

(24 citation statements)

References 31 publications

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“…() characterize the structure properties of the decision policy for a risk‐averse newsvendor that adopts put option contracts to protect against the risk caused by low demand under the downside risk measure. Nosoohi and Nookabadi () analyze and compare the optimal outsourcing decision of the manufacturer that faces the uncertainties derived from the random final processing costs and the stochastic demand under the combined contracts containing call, put, and bidirectional option contracts, respectively. In all these papers, the risks of price and demand caused by inflation have not been taken into consideration.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Unilateral option contracts are classified into two categories: call option contracts and put option contracts. In the real world, the above flexible contracts have been widely used in such industries as agriculture, manufacturing, and transportation (Liu et al., ; Nosoohi and Nookabadi, ; Wang and Chen, ) in different seasons. For example, in the container shipping industry, call option contracts are always applied by the carriers in the peak season while put option contracts are used in the off‐peak season.…”

Section: Introductionmentioning

confidence: 99%

“…However, they neglect the analysis of the supply chain management problem under inflation. In addition, a wide range of studies on option contracts have been published in recent years (Chen and Shen, ; Liu et al., ; Hu et al., ; Nosoohi and Nookabadi, ). However, most of them only consider the risk derived from demand uncertainty and neglect the risks of price and demand caused by inflation.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

The role of put option contracts in supply chain management under inflation

Wan

Chen

2017

Int Trans Operational Res

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This paper considers a supply chain consisting of a supplier who manufactures one type of perishable products characterized by a long lead time and a retailer who purchases the products from the supplier and sells them to end consumers. In order to hedge against the risks of price and demand caused by inflation, portfolio contracts with put options, namely, a combination of wholesale price contracts and put option contracts, are adopted by the retailer to obtain the products from the supplier. We characterize the optimal ordering and production policies for the retailer and the supplier in the presence of put option contracts under inflation. By comparing with the case without put option contracts, we discuss the effect of put option contracts on the supply chain and prove that the usage of put option contracts benefits these two members under inflation. Through several numerical examples, we illustrate the effect of inflation on the supply chain with and without put option contracts. On this basis, we design a feasible supply chain coordination strategy based on put option contracts under inflation.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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The role of put option contracts in supply chain management under inflation

Wan

Chen

2017

Int Trans Operational Res

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“…In the literature on multicriteria decision analysis [47][48][49], studies were found that combine multicriteria decision with optimization and a method that allows the use of quantitative and qualitative criteria decision-making. The work on flexible supply options, or contracts of supply with options [50][51][52][53][54] show that the use of option contracts can minimize risks related to uncertainty of demand and charter prices.…”

Section: Multi-approach Solutionmentioning

confidence: 99%

Optimum Composition of Charter Contracts for the Renewal of the Fleet of Offshore Support Vessels Considering Uncertainties: A Literature Review

Souza¹,

Vaccaro²,

Rocha³

et al. 2019

IJHT

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This article reviews the literature on the Mendeley, Science Direct and Scopus databases on solutions to the optimal composition problem of offshore support charter contracts published between 2008 and 2018. This problem is relevant to the ongoing fleet renewal process, in terms of associated costs and fleet flexibility, in the context of oil and gas exploration and production. The problem is subject to uncertainties related to the demand to be met and to charter prices. The literature presents solutions that can be applied to parts of the problem, however a satisfactory integral solution was not found. The analysis of the literature and the characteristics of the problem indicate the construction of a solution multi-approach method as a viable way to treat the complexity of the problem.

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“…Liu et al [43] analyze the optimal solution for the carrier with call, put, and bidirectional option contracts and then discuss the application strategies of different option contract. Nosoohi and Nookabadi [44] consider the outsourcing decisions with call, put, and bidirectional option contracts for the manufacturer who faces stochastic finial processing cost. They highlight the advantage of option contracts over wholesale price contracts.…”

Section: Literature Reviewmentioning

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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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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Outsource planning through option contracts with demand and cost uncertainty

Cited by 47 publications

References 31 publications

The role of put option contracts in supply chain management under inflation

The role of put option contracts in supply chain management under inflation

Optimum Composition of Charter Contracts for the Renewal of the Fleet of Offshore Support Vessels Considering Uncertainties: A Literature Review

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

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