Research On Option Contract In A Retailer-led Supply Chain

With the development of productivity, progress of science and technology, ceaseless perfect of network technique, more deepening of economic globalization, individuation and diversity of customers'demand, enterprise would face with furious competition. In order to extremely meet the market demand and hardly enhance enterprise performance, on the one hand, domestic and overseas enterprises reinforce inner management, on the other hand, guided by the horizontal integration, enterprises adopt the supply chain management, so as to reduce trade cost and enhance the whole supply chain performance. But usually the supply chain is made up of several relatively independent entities, which often result in conflicting objectives among them. The supply chain members are primarily concerned with optimizing their own objectives, so it leads to the whole supply chain in poor performance. At the same time, the supply chain members are unequal, some are leaders and others are followers. Because the retailer directly faces to the retail-market, so it is easy to grasp the information of customer's demand for the retailer. And because the retailers have formed the strong terminal superiority through forming purchase alliance, innovating the retail format and merger and acquisition, as a result, the balance of power between suppliers and retailers is shifting and the retailers have achieved the leading position in supply chain. The research of how to coordinate the whole supply chain by using supply chain contracts when the retailers have the leading right is still very scarce. Based on the situation, which strategies are adopted by the retailers and suppliers with option contract so as to coordinate the competition relation of suppliers and the retailers and at last achieve the supply chain coordination in retailer-led supply chain consisting of a supplier and a retailer are researched through using the theories and methods of game theory, operational research, inventory theory, finance and industrial economics. Based on the previous research, the impact for supply chain option contract about price, retailer's innovation investment or supplier's innovation investment and supplier and retailer's jointed advertising investment also are considered in the paper. Specifically, the main contents of the research are as following:1. A supply chain option contract mechanism in the retailer-led supply chain is established. There are different concrete flow path for different concrete situation in every section. The basic flow path of the supply chain option contract is:first, the retailer offering a option contract, secondly, supplier purchasing option and determining his production quantity, thirdly, retailer executing the option contract, fourthly, the retailer compensating partial loss which the production unexecuted has brought out, fifthly, researching whether the strategy coordinate the supply chain, a new strategy combining other strategies which would be offered so as to coordinate supply chain in case of uncoordination.2. A fundamental model of the option contract in retailer-led supply chain is established. Based on previous mechanism, the decision-making situation under centralized decision and decentralized decision all have been researched. Research shows that a pure supply chain option contract can coordinate entire supply chain without regard to other factor in a retailer-led supply chain.3. An option contract with price dependent demand in a retailer-led supply chain is researched. The hypothesis that price is exogenous variable is abandoned and the demand changes with the price changes. The price factor is considered in the previous basic mechanism of supply chain option contract in retailer-led supply chain. Research shows that the system has a optimal solution when the decision making is centralized and the expression of optimal solution also is given under considering the price factor. But a pure option contract cannot coordinate supply chain when the decision is decentralized. Therefore the supply chain option contract mechanism that the supplier and the retailer share revenue together is built. Research shows the supply chain option contract of revenue-sharing contract can coordinate the retailer-led supply chain.4. An option contract with the retailer's innovation investment or the supplier's innovation investment in a retailer-led supply chain is researched. Innovation investment may expand market and also increase investor's cost. So it is a factor that impacts the supply chain option contract. Therefore it is necessary that supply chain option contract considering with the retailer's innovation investment or the supplier's innovation investment in a retailer-led supply chain is researched. Research shows that the system has a optimal solution when the decision making is centralized and the expression of optimal solution also is given under considering the innovation investment factor. But a pure option contract cannot coordinate supply chain when the decision is decentralized. Therefore the supply chain option contract mechanism that the supplier and the retailer share innovation investment of the retailer or the supplier together is built. Research shows the supply chain option contract with sharing the retailer's innovation investment or the supplier's innovation investment can coordinate the retailer-led supply chain.5. An option contract with the jointed advertising investment in a retailer-led supply chain is researched. Advertising is a main nonprice competition approach. So it is a factor that impacts the supply chain option contract. Therefore it is necessary that supply chain option contract considering with the jointed advertising investment in a retailer-led supply chain is researched. Research shows that the system has a optimal solution when the decision making is centralized and the expression of optimal solution also is given under considering the jointed advertising investment factor. But a pure option contract cannot coordinate supply chain when the decision is decentralized. Therefore the supply chain option contract mechanism that the supplier and the retailer share the jointed advertising investment cost of the supplier's brand advertising and the retailer's local promotion advertising is built. Research shows the supply chain option contract with sharing the jointed advertising investment can coordinate the retailer-led supply chain.6. The paper provides numerical case analysis for each decision-making model. By numerical example, the models have been simulated and analyzed and verifies the validity of the conclusion.