Coordination of supply chains with bidirectional option contracts

Yingxue Zhao, Lijun Ma, Gang Xie, Edwin Tai Chiu Cheng

Research output: Journal article publicationJournal articleAcademic researchpeer-review

100 Citations (Scopus)


In this paper we develop a supply contract for a two-echelon manufacturer-retailer supply chain with a bidirectional option, which may be exercised as either a call option or a put option. Under the bidirectional option contract, we derive closed-form expressions for the retailer's optimal order strategies, including the initial order strategy and the option purchasing strategy, with a general demand distribution. We also analytically examine the feedback effects of the bidirectional option on the retailer's initial order strategy. In addition, taking a chain-wide perspective, we explore how the bidirectional option contract should be set to attain supply chain coordination.
Original languageEnglish
Pages (from-to)375-381
Number of pages7
JournalEuropean Journal of Operational Research
Issue number2
Publication statusPublished - 1 Sept 2013


  • Supply chain management Bidirectional option contract Structural property Channel coordination

ASJC Scopus subject areas

  • Modelling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management


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