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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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    7. 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.
    8. 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.
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    12. Zare, Marjan & Esmaeili, Maryam & He, Yuanjie, 2019. "Implications of risk-sharing strategies on supply chains with multiple retailers and under random yield," International Journal of Production Economics, Elsevier, vol. 216(C), pages 413-424.
    13. Zhao, Yingxue & Choi, Tsan-Ming & Cheng, T.C.E. & Wang, Shouyang, 2018. "Supply option contracts with spot market and demand information updating," European Journal of Operational Research, Elsevier, vol. 266(3), pages 1062-1071.
    14. Wang, Chong & Chen, Jing & Chen, Xu, 2019. "The impact of customer returns and bidirectional option contract on refund price and order decisions," European Journal of Operational Research, Elsevier, vol. 274(1), pages 267-279.
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    16. 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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    18. 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.
    19. Yuan, Zhennan & Chen, Frank Y. & Yan, Xiaoming & Yu, Yugang, 2020. "Operational implications of yield uncertainty in mergers and acquisitions," International Journal of Production Economics, Elsevier, vol. 219(C), pages 248-258.
    20. Cai, Jianhu & Hu, Xiaoqing & Jiang, Feiying & Zhou, Qing & Zhang, Xiaoyang & Xuan, Liyuan, 2019. "Optimal input quantity decisions considering commitment order contracts under yield uncertainty," International Journal of Production Economics, Elsevier, vol. 216(C), pages 398-412.
    21. Taheri, Seyed Ghiasuddin & Navabakhsh, Mehrzad & Tohidi, Hamid & Mohammaditabar, Davood, 2024. "A system dynamics model for optimum time, profitability, and customer satisfaction in omni-channel retailing," Journal of Retailing and Consumer Services, Elsevier, vol. 78(C).
    22. Khouja, Moutaz & Hammami, Ramzi, 2023. "Optimizing price, order quantity, and return policy in the presence of consumer opportunistic behavior for online retailers," European Journal of Operational Research, Elsevier, vol. 309(2), pages 683-703.

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