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Flexible Contract in Perishable Products Supply Chain with Independent Option

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2 Author(s)
Yajing Wang ; Sch. of Manage., Northwestern Polytech. Univ., Xi''an, China ; Xiaojing Zhang

This paper brings option trading into perishable products supply chain, with high demand uncertainties, long production lead-times and short selling period, and explores the application of independent option in flexible contract. Based on these, it develops a two-stage contract with independent option for a single manufacturer and two retailers, analyzes the decision process of retailer and obtains the retailer's optimal order policy. Then it compares the contract model with nested-option contract, and finds out that independent option can increase retailer's profit through option trading and the retailer will increase the quantity of options purchased while reduce the quantity of initial order. The unit price of traded option influences the retailer's optimal order policy. With the increase of retailer's profit and flexibility, the supply chain's default and moral risk also increase.

Published in:

Computational Sciences and Optimization (CSO), 2011 Fourth International Joint Conference on

Date of Conference:

15-19 April 2011