Portfolio procurement policies for budget-constrained supply chains with option contracts and external financing

Benyong Hu, Xu Chen, Felix T.S. Chan, Chao Meng

Research output: Journal article publicationJournal articleAcademic researchpeer-review

5 Citations (Scopus)

Abstract

This study investigates a budget-constrained retailer's optimal fi-nancing and portfolio order policies in a supply chain with option contracts. To this end, we develop two analytical models: a basic model with wholesale price contracts as the benchmark and a model with option contracts. Each model considers both the financing scenario and the no-financing scenario. Our analyses show that the retailer uses wholesale price contracts for procurement, instead of option contracts, when its budget is extremely tight. The retailer starts to use a combination of these two types of contracts when the budget constraint is relieved. As the budget increases, the retailer adjusts the procurement ratio through both types until it can implement the optimal ordering policy with an adequate budget. In addition, the condition for seeking external financing is determined by the retailer's initial budget, financing cost, and profit margin.

Original languageEnglish
Pages (from-to)1105-1122
Number of pages18
JournalJournal of Industrial and Management Optimization
Volume14
Issue number3
DOIs
Publication statusPublished - 1 Jul 2018

Keywords

  • Budget constraint
  • External financing
  • Option contract
  • Portfolio procurement policy
  • Supply chain management

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management
  • Control and Optimization
  • Applied Mathematics

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