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Option and capacity reservation contracts in a supply chain

Author

Listed:
  • Alejandra Gomez-Padilla
  • Tsutomu Mishina

Abstract

This paper considers a dyadic supply chain formed by one retailer and one supplier, and compares the performances for both companies and for the whole chain as a single unit under two types of contracts: option and capacity reservation contracts. Under an option contract, the retailer orders a quantity of units and has a right to modify his order in any sense (it may be bigger or smaller than the initial order), without restrictions by buying the option premium in advance from the supplier. Under a capacity reservation contract, the retailer reserves a number of units from the supplier and after receiving more information about demand, he will pass his final order. Firstly, the theoretical bases are introduced for each contract, next both models are compared, then simulation results are presented and discussed, and finally, we concluded.

Suggested Citation

  • Alejandra Gomez-Padilla & Tsutomu Mishina, 2013. "Option and capacity reservation contracts in a supply chain," International Journal of Industrial and Systems Engineering, Inderscience Enterprises Ltd, vol. 13(3), pages 266-279.
    • Handle: RePEc:ids:ijisen:v:13:y:2013:i:3:p:266-279
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