A Relief Supplies Purchasing Model Based on Bidirectional Option Contract

Fei Luo () and Xianliang Shi ()
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Fei Luo: Beijing Jiaotong University
Xianliang Shi: Beijing Jiaotong University

A chapter in LISS 2023, 2024, pp 493-508 from Springer

Abstract: Abstract Due to the uncertainty in the demand for relief supplies after a disaster, the government always faces the double risk of inventory buildup and shortages. Based on this, this paper constructs a relief supplies purchasing model based on bidirectional option contract consisting of the government and two suppliers, taking into account the probability of a disaster striking. We derive the optimal decision on the quantity of relief supplies at the beginning of the reserve period and the quantity of options sold by the two suppliers, analyze the parameter conditions to achieve supply chain coordination, and compare it with the separate government reserve model. We find that the bidirectional option model both increases the total quantity of government relief supplies reserves and reduces the risk of actual government storage of relief supplies. Finally, the numerical illustration and sensitivity analysis is performed to the bidirectional contract can be a win-win for government and suppliers, and the prepositioning quantity is positively related to the call option execution price and the put option execution price.

Keywords: relief supplies purchasing; bidirectional option; joint government-enterprise reserves; supply chain coordination (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:spr:lnopch:978-981-97-4045-1_38

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DOI: 10.1007/978-981-97-4045-1_38

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