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Supply chain coordination for short-life-cycle products with option contract and partial backorders

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  • Hui-Ming Wee
  • Wan-Tsu Wang

Abstract

This paper develops a newsboy problem with option contract and partial backorders. In this option contact policy, if the demand exceeds the order quantity, the retailer may have a second replenishment opportunity to order an option quantity from the manufacturer in order to fulfil its backorders. The study derives the optimal solutions for an integrated and decentralised system with a single manufacturer and retailer. The result shows that the integrated system has a greater profit than the decentralised system irrespective of the backordering rate. When the backordering rate is greater than a certain value, the optimal decision is to backorder all the demand from the option quantity. This study provides managerial insights in selecting a revenue-sharing contract to obtain the optimal price and order/option quantity that maximises the supply chain profit. [Received 24 November 2010; Revised 19 February 2011; Revised 07 May 2011; Accepted 21 June 2011]

Suggested Citation

  • Hui-Ming Wee & Wan-Tsu Wang, 2013. "Supply chain coordination for short-life-cycle products with option contract and partial backorders," European Journal of Industrial Engineering, Inderscience Enterprises Ltd, vol. 7(1), pages 78-99.
    • Handle: RePEc:ids:eujine:v:7:y:2013:i:1:p:78-99
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    Cited by:

    1. Ke Ma & Sébastien Thomassey & Xianyi Zeng, 2020. "Development of a central order processing system for optimizing demand-driven textile supply chains: a real case based simulation study," Annals of Operations Research, Springer, vol. 291(1), pages 627-656, August.

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