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Production and procurement strategies for seasonal product supply chain under yield uncertainty with commitment-option contracts

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  • Li, Ji-cai
  • Zhou, Yong-wu
  • Huang, Wenyan

Abstract

This paper develops a game-theoretic decision-making model of production and procurement with commitment-option contracts in a decentralized supply chain consisting of one manufacturer and one retailer. The manufacturer distributes one kind of seasonal product via the retailer to the end market, whose demand is random, and the manufacturer's production yield is stochastic. We study the retailer's optimal ordering policy and the manufacturer's optimal production strategy under two different option contracts (that is, commitment-unidirectional call option contract and commitment-bidirectional option contract). The effects of demand uncertainty, production yield stochastic volatility, instant procurement price variability, and the price parameters’ changes of option contracts on the optimal operational strategies and performances of both participants are also analyzed. These results will be helpful for the manufacturers and retailers in the supply chain with seasonal products to make production scheduling strategy and procurement policy feasibly and scientifically.

Suggested Citation

  • Li, Ji-cai & Zhou, Yong-wu & Huang, Wenyan, 2017. "Production and procurement strategies for seasonal product supply chain under yield uncertainty with commitment-option contracts," International Journal of Production Economics, Elsevier, vol. 183(PA), pages 208-222.
    • Handle: RePEc:eee:proeco:v:183:y:2017:i:pa:p:208-222
    DOI: 10.1016/j.ijpe.2016.10.019
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    References listed on IDEAS

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    6. Wang, Chong & Chen, Jing & Chen, Xu, 2019. "The impact of customer returns and bidirectional option contract on refund price and order decisions," European Journal of Operational Research, Elsevier, vol. 274(1), pages 267-279.
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