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Optimal production and procurement decisions in a supply chain with an option contract and partial backordering under uncertainties

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  • Hu, Fei
  • Lim, Cheng-Chew
  • Lu, Zudi

Abstract

This paper considers a decentralized supply chain including one retailer and one manufacturer, where the manufacturer’s production yield and the retailer’s demand are both stochastic. At the beginning of the selling season, the retailer places an order and purchases an option contract with the manufacturer. After the selling season, the excess demand is partially backordered, and the retailer exercises his option order and then place an instant order for the backorders. The optimal ordering policy for the retailer and the corresponding production decision for the manufacturer are studied. Numerical examples are carried out to show the impact of the model parameters on the optimal policies.

Suggested Citation

  • Hu, Fei & Lim, Cheng-Chew & Lu, Zudi, 2014. "Optimal production and procurement decisions in a supply chain with an option contract and partial backordering under uncertainties," Applied Mathematics and Computation, Elsevier, vol. 232(C), pages 1225-1234.
    • Handle: RePEc:eee:apmaco:v:232:y:2014:i:c:p:1225-1234
    DOI: 10.1016/j.amc.2014.01.149
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    3. Hossein Salehi & Ata Allah Taleizadeh & Reza Tavakkoli-Moghaddam, 2016. "An EOQ model with random disruption and partial backordering," International Journal of Production Research, Taylor & Francis Journals, vol. 54(9), pages 2600-2609, May.
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    5. Wang, Lingling & Wu, Yong & Hu, Shengqiang, 2021. "Make-to-order supply chain coordination through option contract with random yields and overconfidence," International Journal of Production Economics, Elsevier, vol. 242(C).
    6. Eriksson, Katarina, 2019. "An option mechanism to coordinate a dyadic supply chain bilaterally in a multi-period setting," Omega, Elsevier, vol. 88(C), pages 196-209.
    7. Wang, Chong & Chen, Jing & Chen, Xu, 2017. "Pricing and order decisions with option contracts in the presence of customer returns," International Journal of Production Economics, Elsevier, vol. 193(C), pages 422-436.
    8. Li, Yemei & Shan, Yanfei & Ling, Shuang, 2022. "Research on option pricing and coordination mechanism of festival food supply chain," Socio-Economic Planning Sciences, Elsevier, vol. 81(C).
    9. Debnath, Biswajit & El-Hassani, Rihab & Chattopadhyay, Amit K. & Kumar, T. Krishna & Ghosh, Sadhan K. & Baidya, Rahul, 2022. "Time evolution of a Supply Chain Network: Kinetic modeling," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 607(C).
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    11. Chong Wang & Xu Chen, 2017. "Option pricing and coordination in the fresh produce supply chain with portfolio contracts," Annals of Operations Research, Springer, vol. 248(1), pages 471-491, January.

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