A Flexible Supply Contract With Duoptions

In recent years, increasingly fierce market competition and changing market environment leads many companies to pay special attention to producing innovative products, which are always characterized by long manufacturing lead-times, short selling seasons and high demand uncertainties.Such as fast fashion products, electronic products etc. But the supply chain of these products always use inflexible supply contract, such as newsvendor model, which lead the supply chain is inefficient. In order to improve the performance of this kind supply chain, we propose a flexible supply contract with duoptions (SCDO) and study it from retailer’s perspective.The first,we develop the retailer’s expect profit function and find the retailer’s optimal decision expression.Then,we analyze the model numerically and study the influence of retailer’s decision when different parameters changed.What’s more,we prove that the supply contract with duoptions model can improve the retailer’s profit when newsvendor model as a benchmark.The last, based on previous studies,we compared supply contract with duoptions with supply contract with call options, supply contract with bidirectional options and supply contract with put options respectively. We find that retailers use supply contract with duoptions can get more profit compare to supply contract with call options and supply contract with put options.Compared to supply contract with bidirectional options,the one get more flexibility will get more profit when options price changed. Meanwhile, when options exercise price changed,the retailer can get more profit who own more actual flexibility. It also provides a reference to supply chain decision makers who actual use options.