An emergency supplies procurement strategy based on a bidirectional option contract

Qingchun Meng, Zhiping Kao, Ying Guo and Chunbing Bao

Socio-Economic Planning Sciences, 2023, vol. 87, issue PA

Abstract: The occurrence of a disaster and its location, type, intensity, scope and duration are highly uncertain, making it hard to accurately estimate the emergency demand. As the main purchasers and managers of emergency supplies, governments face shortage and surplus risks when pre-purchasing and reserving emergency supplies before disasters occur. To address this dilemma, we design an emergency supplies procurement strategy based on a bidirectional option contract (BOC) by considering the system as a relief supply chain. Expected profit functions of the relief supply chain members include the procurement cost, inventory cost and production cost of emergency supplies, the cost and revenue of option trading, the salvage value and the value of demand satisfaction. We derive the purchaser’s optimal procurement portfolio and demonstrate that the BOC enables the coordination of the relief supply chain. We illustrate the superiority of the BOC procurement strategy over the benchmark procurement scenario without the use of the BOC. As an extension, we also compare the BOC with two unilateral option contracts in emergency supplies procurement and summarise the advantage of the BOC. The research extends the application context of the BOC and provides a feasible strategy for governments to procure emergency supplies.

Keywords: Emergency management; Emergency supplies procurement; Relief supply chain; Supply chain coordination (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0038012123000083
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:soceps:v:87:y:2023:i:pa:s0038012123000083

DOI: 10.1016/j.seps.2023.101515

Access Statistics for this article

Socio-Economic Planning Sciences is currently edited by Barnett R. Parker

More articles in Socio-Economic Planning Sciences from Elsevier
Bibliographic data for series maintained by Catherine Liu ().