Study On Supply Chain Coordination Based On Option Contracts

Decision-making of supply chain, constituted by a number of relative members with their own economic benefits purpose, is difficult for decision makers who had to deal with the uncertainty of market demand. Therefore, it is of great significance to design a reasonable supply chain contract to adjust the volume of orders in response to the market demand more accurately, improve the efficiency of supply chain and coordinate the interests among the partners reasonably. Using option contract, this paper researches the optimization problem of two supply chain systems separately, one of which consists of one supplier and one retailer (one-one) and the other consists of two suppliers and one retailer (two-one).Firstly, the paper analyzes the option contracts design problem in allusion the one-one supply chain system when supplier production costs are asymmetric information. The study shows that supply chain can achieve Pareto optimality under symmetric information. On the contrary, supply chain can't achieve Pareto optimality and the overall profits are reduced as well as the efficiency of the supply chain under asymmetric information, although supplier can share the information of the costs through the option contracts.Secondly, the paper analyzes the influence of the fluctuation of retail price and cost of supplier caused by disruptions. The orders will change and supply chain coordination will be broken off unless retail price and cost are in certain conditions. It shows that the option contracts have anti-disruption ability which could achieve supply chain coordination by changing the parameters.Finally, the paper also discusses the retailer's order policies in the cases of disruptions or not under the two-one supply chain system. We conclude that the total orders of retailer change at both suppliers under disruptions, and the change of orders presents certain regular pattern with the probability of change.