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Coordination of supply chains with bidirectional option contracts

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

Abstract

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.

Suggested Citation

  • Zhao, Yingxue & Ma, Lijun & Xie, Gang & Cheng, T.C.E., 2013. "Coordination of supply chains with bidirectional option contracts," European Journal of Operational Research, Elsevier, vol. 229(2), pages 375-381.
    • Handle: RePEc:eee:ejores:v:229:y:2013:i:2:p:375-381
    DOI: 10.1016/j.ejor.2013.03.020
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    References listed on IDEAS

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    Citations

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    Cited by:

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    5. Zhao, Yingxue & Choi, Tsan-Ming & Cheng, T.C.E. & Wang, Shouyang, 2018. "Supply option contracts with spot market and demand information updating," European Journal of Operational Research, Elsevier, vol. 266(3), pages 1062-1071.
    6. Alireza Bakhshi & Jafar Heydari, 2023. "An optimal put option contract for a reverse supply chain: case of remanufacturing capacity uncertainty," Annals of Operations Research, Springer, vol. 324(1), pages 37-60, May.
    7. Eriksson, Katarina, 2019. "An option mechanism to coordinate a dyadic supply chain bilaterally in a multi-period setting," Omega, Elsevier, vol. 88(C), pages 196-209.
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    14. Pan Guo & Yanlin Jia & Junwei Gan & Xiaofeng Li, 2021. "Optimal Pricing and Ordering Strategies with a Flexible Return Strategy under Uncertainty," Mathematics, MDPI, vol. 9(17), pages 1-12, August.
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    19. Wang Heng & Xu Qi, 2017. "Procurement Strategies Using Portfolio Approach Based on Options and Spot Markets Procurement," International Journal of Business and Management, Canadian Center of Science and Education, vol. 12(10), pages 212-212, September.
    20. Vafa Arani, Hamed & Rabbani, Masoud & Rafiei, Hamed, 2016. "A revenue-sharing option contract toward coordination of supply chains," International Journal of Production Economics, Elsevier, vol. 178(C), pages 42-56.
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    23. Li, Tianyun & Fang, Weiguo & Baykal-Gürsoy, Melike, 2021. "Two-stage inventory management with financing under demand updates," International Journal of Production Economics, Elsevier, vol. 232(C).

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