Research On Management Decisions For Fresh Produce Supply Chain With Option Contracts

Fresh produce plays an important role in the market as its quantity is large, its variety is huge, it is an important part of market, and it is the necessities of people’s life. Fresh produce supply chain is the carrier of fresh produce circulation. Improving the operation efficiency of the fresh produce supply chain which is significant to establish an efficient, smooth, safe, and orderly fresh produce circulation system, to ensure supply and price stability for fresh produce market. However, the inherent attributes and characteristics of supply chain management for fresh produce causes high risks to the fresh produce supply chain management, consequently puts forward severe challenges on fresh produce supply chain management. On the other hand, as an effective tool of supply chain risk hedge, option contracts are becoming increasingly popular in supply chain management. And applying option contracts to fresh produce supply chain management are attracting more and more attentions of researchers and practitioners. But, the existing references about fresh produce supply chain management considering option contracts still have shortcomings such as did not study deep enough, studied from a single perspective, and were not in system.In this dissertation, combining with the relevant theoretical research at home and abroad, with the progress, limitation and development trend of management practices, in accordance with the actual situations faced by the fresh produce supply chain management, we introduce financial derivatives option contract into fresh produce supply chain management decision-making, and study the fresh produce supply chain management decisions and their applications thoroughly under call option, put option and bidirectional options with stochastic inventory theory, game theory and numerical simulation from the perspectives of the option seller and the option buyer, respectively. The main research contents and conclusions are as follows:First of all, option pricing decision-making for the fresh produce supplier with option contract has been studied. It is shown that, with mild assumptions of unit product’s supply cost, retail price, penalty cost and other parameters, for a given option price/exercise price, the supplier’s expected profit is concave to the exercise price/option price. Before the option prices achieve to the optimal, the supplier’s expected profit is increasing in the option prices. Under call option contract, the supplier’s optimal option prices increase in the circulation loss when with single decision, while are not related to the circulation loss when with joint decisions. Under put option contract, with different decision situations, the supplier’s optimal option price decreases in the circulation loss. And the supplier’s optimal exercise price increases in the circulation loss when with single decision, while are not related to the circulation loss when with joint decisions. Under bidirectional options contract, with different decision situations, the supplier’s optimal option price decreases in the circulation loss. And the supplier’s optimal exercise price is segmented related to the circulation loss when with single decision, while increases in the circulation loss when with joint decisions. The supplier’s maximum expected profit increases in the circulation loss, while the chain’s maximum expected profit decreases in the circulation loss. The circulation loss of fresh produce increases the management risks of fresh produce supply chain with option contracts.Secondly, joint ordering and pricing decision-making for the fresh produce retailer with option contract has been examined. It is shown that, under different ordering policies, the fresh produce retailer’s optimal joint ordering and pricing strategy exists and is unique. The retailer’s optimal total quantity, optimal retail price and maximum expected profit with mixed ordering are all greater than the optimal total quantity, optimal retail price and maximum expected profit with single ordering, respectively. The retailer’s optimal ordering quantity that can obtain product and maximum expected profit decrease in the wholesale price, while its optimal retail price increases in the wholesale price. The retailer’s optimal ordering quantity that can obtain product, optimal retail price and maximum expected profit decrease in the option price. The retailer’s optimal ordering quantity that can obtain product and optimal retail price decrease in the exercise price under call option contract, while are increasing functions of exercise price under put option contract. The retailer’s maximum expected profit decrease in the exercise price under call and bidirectional options contracts, while are increasing functions of exercise price under put option contract. Under call option contract, compared with single ordering, mixed ordering is more capable to deal with supply price volatility risk. The retailer’s optimal ordering quantity that can obtain product and optimal retail price increase in the circulation loss, while its maximum expected profit decreases in the circulation loss. The circulation loss of fresh produce increases the management risks of fresh produce retailer with option contracts.Again, ordering policy selection for the fresh produce retailer with option contract has been investigated. It is shown that, the retailer’s optimal ordering policy is mixed ordering. Compared with the way only orders form a firm which belongs to single ordering, mixed ordering is more capable to handle demand risk. If only single ordering is available, the retailer prefers ordering from a firm when demand risk is low, while enjoys purchasing and exercising call options when demand risk is high.Finally, coordination issues for the fresh produce supply chain with option contract have been discussed. It is shown that, when the contract parameters satisfy certain conditions, option contract can coordinate the fresh produce supply chain. Nevertheless, when supply chain achieves coordination, the supplier cannot price optimally. Further, under call option contract, Pareto improvement can be achieved by reasonable wholesale price set by the supplier. However, under put and bidirectional options contract, since any change of the contract parameters will influence the supply chain members’ expected profits, coordination issues for the fresh produce supply chain become more complex.Our research work has an important academic value for the perishable supply chain risk management theory and method, has a significant application value for fresh produce enterprises’ ordering and pricing decisions and profit increasing. Also, the work is of great practical significance to innovate fresh produce circulation mode, to perfect the market function, to close relationship between production and marketing cohesion, to reduce production blindness, and to security market supply and price stability.