Coordination of supply chains with bidirectional option contracts |
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| Authors: | Yingxue Zhao Lijun Ma Gang Xie T.C.E. Cheng |
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| Affiliation: | 1. School of International Trade and Economics, University of International Business and Economics, Beijing 100029, PR China;2. Department of Management Science, College of Management, Shenzhen University, Shenzhen 518060, PR China;3. Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing 100190, PR China;4. Department of Logistics and Maritime Studies, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong Special Administrative Region |
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| 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. |
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| Keywords: | Supply chain management Bidirectional option contract Structural property Channel coordination |
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