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Coordinating VMI supply chain under yield uncertainty: Option contract, subsidy contract, and replenishment tactic

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  • Cai, Jianhu
  • Zhong, Man
  • Shang, Jennifer
  • Huang, Weilai

Abstract

The paper introduces an option contract to improve the performance of a vendor-managed inventory (VMI) supply chain under yield uncertainty. We first assume that there is a deterministic demand and find that the option contract can coordinate the supply chain and arbitrarily allocate coordinated profit among members. Compared with a subsidy contract, we then investigate the relationship between the option contract and the subsidy contract in the paper. When a replenishment tactic is considered in the model, supply chain coordination and Pareto improvement can be achieved by introducing the option contract. The paper further shows that the option contract also can effectively coordinate the supply chain when demand is stochastic. Numerical studies are conducted to illustrate our models and validate our findings.

Suggested Citation

  • Cai, Jianhu & Zhong, Man & Shang, Jennifer & Huang, Weilai, 2017. "Coordinating VMI supply chain under yield uncertainty: Option contract, subsidy contract, and replenishment tactic," International Journal of Production Economics, Elsevier, vol. 185(C), pages 196-210.
    • Handle: RePEc:eee:proeco:v:185:y:2017:i:c:p:196-210
    DOI: 10.1016/j.ijpe.2016.12.032
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    References listed on IDEAS

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    3. Biswas, Indranil & Avittathur, Balram, 2019. "Channel coordination using options contract under simultaneous price and inventory competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 123(C), pages 45-60.
    4. Lee, Jun-Yeon & Cho, Richard K., 2018. "Optimal (z, Z)-type contracts for vendor-managed inventory," International Journal of Production Economics, Elsevier, vol. 202(C), pages 32-44.
    5. Wang, Feng & Diabat, Ali & Wu, Lunwen, 2021. "Supply chain coordination with competing suppliers under price-sensitive stochastic demand," International Journal of Production Economics, Elsevier, vol. 234(C).
    6. Zhong, Yuanguang & Liu, Ju & Zhou, Yong-Wu & Cao, Bin & Cheng, T.C. Edwin, 2022. "Robust contract design and coordination under consignment contracts with revenue sharing," International Journal of Production Economics, Elsevier, vol. 253(C).
    7. Jin Sha & Sisi Zheng, 2023. "Analysis of Sub-Optimization Impact on Partner Selection in VMI," Sustainability, MDPI, vol. 15(3), pages 1-11, February.
    8. Asl-Najafi, Javad & Yaghoubi, Saeed & Zand, Fatemeh, 2021. "Dual-channel supply chain coordination considering targeted capacity allocation under uncertainty," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 187(C), pages 566-585.
    9. Teymourifar, Aydin & Kaya, Onur & Ozturk, Gurkan, 2021. "Contracting models for pricing and capacity decisions in healthcare systems," Omega, Elsevier, vol. 100(C).
    10. Peymankar, Mahboobe & Dehghanian, Farzad & Ghiami, Yousef & Abolbashari, Mohammad Hassan, 2018. "The effects of contractual agreements on the economic production quantity model with machine breakdown," International Journal of Production Economics, Elsevier, vol. 201(C), pages 203-215.
    11. Li, Guo & Wu, Huamin & Sethi, Suresh P. & Zhang, Xiang, 2021. "Contracting green product supply chains considering marketing efforts in the circular economy era," International Journal of Production Economics, Elsevier, vol. 234(C).
    12. Zhang, Mengyao & Gou, Qinglong & Yu, Lili & Zhang, Juzhi, 2022. "Pricing decisions for a social comparison product supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 168(C).
    13. Kelei Xue & Yongjian Li & Xueping Zhen & Wen Wang, 2020. "Managing the supply disruption risk: option contract or order commitment contract?," Annals of Operations Research, Springer, vol. 291(1), pages 985-1026, August.
    14. Fan, Yinghua & Feng, Yi & Shou, Yongyi, 2020. "A risk-averse and buyer-led supply chain under option contract: CVaR minimization and channel coordination," International Journal of Production Economics, Elsevier, vol. 219(C), pages 66-81.
    15. Cai, Jianhu & Hu, Xiaoqing & Jiang, Feiying & Zhou, Qing & Zhang, Xiaoyang & Xuan, Liyuan, 2019. "Optimal input quantity decisions considering commitment order contracts under yield uncertainty," International Journal of Production Economics, Elsevier, vol. 216(C), pages 398-412.

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