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.
- 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