Supply chain coordination with risk-averse retailer and option contract: Supplier-led vs. Retailer-led

Zhongyi Liu, Shengya Hua and Xin Zhai

International Journal of Production Economics, 2020, vol. 223, issue C

Abstract: We investigate the coordination of both the supplier-led and the retailer-led supply chains under option contract. Specifically, we consider the option pricing, ordering, and producing problems in a supply chain consisting of a risk-neutral supplier and a risk-averse retailer behaving under the conditional value-at-risk (CVaR) criteria. The results show that, in a supplier-led supply chain, the supplier's production quantity equals the retailer's order quantity only if the penalty cost is high enough. In a retailer-led supply chain, the retailer will set the option price as low as possible in order to shift more risks to the supplier. By comparing results under both supply chain structures, we find that the retailer purchases more options at a lower price in the retailer-led supply chain, but the supplier's production quantities remain the same under both supply chain structures. Finally, we prove that both the supplier-led and the retailer-led supply chains can be coordinated under the same conditions, which is different from the conclusions obtained by previous studies.

Keywords: Option contract; Risk aversion; Supply chain coordination; Supply chain structure (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:223:y:2020:i:c:s0925527319303391

DOI: 10.1016/j.ijpe.2019.107518

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