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Production and procurement strategies for seasonal product supply chain under yield uncertainty with commitment-option contracts

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  • Li, Ji-cai
  • Zhou, Yong-wu
  • Huang, Wenyan

Abstract

This paper develops a game-theoretic decision-making model of production and procurement with commitment-option contracts in a decentralized supply chain consisting of one manufacturer and one retailer. The manufacturer distributes one kind of seasonal product via the retailer to the end market, whose demand is random, and the manufacturer's production yield is stochastic. We study the retailer's optimal ordering policy and the manufacturer's optimal production strategy under two different option contracts (that is, commitment-unidirectional call option contract and commitment-bidirectional option contract). The effects of demand uncertainty, production yield stochastic volatility, instant procurement price variability, and the price parameters’ changes of option contracts on the optimal operational strategies and performances of both participants are also analyzed. These results will be helpful for the manufacturers and retailers in the supply chain with seasonal products to make production scheduling strategy and procurement policy feasibly and scientifically.

Suggested Citation

  • Li, Ji-cai & Zhou, Yong-wu & Huang, Wenyan, 2017. "Production and procurement strategies for seasonal product supply chain under yield uncertainty with commitment-option contracts," International Journal of Production Economics, Elsevier, vol. 183(PA), pages 208-222.
    • Handle: RePEc:eee:proeco:v:183:y:2017:i:pa:p:208-222
    DOI: 10.1016/j.ijpe.2016.10.019
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    References listed on IDEAS

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    11. Kapustina Larisa M. & Chovancová Mária & Klapita Vladimír, 2017. "Application of Specific Theory of Constraints Technique for the Identification of Main Causes of Negative Consequences within Procurement Logistics," LOGI – Scientific Journal on Transport and Logistics, Sciendo, vol. 8(1), pages 56-63, May.
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    16. Lin, Junyi & Zhou, Li & Spiegler, Virginia L.M. & Naim, Mohamed M. & Syntetos, Aris, 2022. "Push or Pull? The impact of ordering policy choice on the dynamics of a hybrid closed-loop supply chain," European Journal of Operational Research, Elsevier, vol. 300(1), pages 282-295.
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    20. Kelei Xue & Yongjian Li & Xueping Zhen & Wen Wang, 2020. "Managing the supply disruption risk: option contract or order commitment contract?," Annals of Operations Research, Springer, vol. 291(1), pages 985-1026, August.
    21. Shi, Jinzhao & Liu, Dian & Du, Qiang & Cheng, T.C.E., 2023. "The role of the procurement commitment contract in a low-carbon supply chain with a capital-constrained supplier," International Journal of Production Economics, Elsevier, vol. 255(C).
    22. Jiarong Luo & Xu Chen & Chong Wang & Gaoxun Zhang, 2021. "Bidirectional options in random yield supply chains with demand and spot price uncertainty," Annals of Operations Research, Springer, vol. 302(1), pages 211-230, July.

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