Coordination of supply chains with bidirectional option contracts

Yingxue Zhao, Lijun Ma, Gang Xie and T.C.E. Cheng

European Journal of Operational Research, 2013, vol. 229, issue 2, 375-381

Abstract: In this paper we develop a supply contract for a two-echelon manufacturer–retailer supply chain with a bidirectional option, which may be exercised as either a call option or a put option. Under the bidirectional option contract, we derive closed-form expressions for the retailer’s optimal order strategies, including the initial order strategy and the option purchasing strategy, with a general demand distribution. We also analytically examine the feedback effects of the bidirectional option on the retailer’s initial order strategy. In addition, taking a chain-wide perspective, we explore how the bidirectional option contract should be set to attain supply chain coordination.

Keywords: Supply chain management; Bidirectional option contract; Structural property; Channel coordination (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:229:y:2013:i:2:p:375-381

DOI: 10.1016/j.ejor.2013.03.020

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