Coordination of supply chains with bidirectional option contracts. (English) Zbl 1317.90062

Zhao, Yingxue; Ma, Lijun; Xie, Gang; Cheng, T. C. E.

Eur. J. Oper. Res. 229, No. 2, 375-381 (2013).

Summary: In this paper we develop a supply contract for a two-echelon manufacturer-retailer supply chain with a bidirectional option, which may be exercised as either a call option or a put option. Under the bidirectional option contract, we derive closed-form expressions for the retailer’s optimal order strategies, including the initial order strategy and the option purchasing strategy, with a general demand distribution. We also analytically examine the feedback effects of the bidirectional option on the retailer’s initial order strategy. In addition, taking a chain-wide perspective, we explore how the bidirectional option contract should be set to attain supply chain coordination.

MSC:

90B06

Transportation, logistics and supply chain management

Keywords:

supply chain management; bidirectional option contract; structural property; channel coordination

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