Risk hedging in a supply chain: Option vs. price discount

Zhongyi Liu, Lihua Chen, Ling Li and Xin Zhai

International Journal of Production Economics, 2014, vol. 151, issue C, 112-120

Abstract: In this research, two risk hedging strategies, the option contract and the advance purchase discount contract, are investigated within a manufacturer–retailer two-echelon supply chain context. This study offers three contributions. First, the optimal decisions under the two contracts from the perspectives of both the manufacturer and the retailer are determined. Second, circumstances under which supply chain coordination can be reached are identified. Third, the scenario of loss-averse manufacturer has been explored. The results of the analysis provide practical insights to the manufacturer when she plans production quantity and to the retailer when he replenishes inventory.

Keywords: Risk hedging; Option contract; Advance Purchase Discount contract; Loss-averse supplier (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (22)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:151:y:2014:i:c:p:112-120

DOI: 10.1016/j.ijpe.2014.01.019

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