A Flexible Supply Contract With Duoptions

In recent years, the high uncertainty and high risk of markets has been an important subject for supply chain management, especially the supply chains with products which are characterized by long manufacturing lead-times, short selling seasons and high demand uncertainties, such as fashion apparel, toys etc. In this supply chain, buyers and suppliers usually sign inflexible supply contract, i.e. newsvendor model. However, due to inflexibility of this kind of contracts, both parties in the supply chain cant adjust production and ordering decisions in time when actual demand fluctuates in selling season, which usually leads to poor performance of the supply chain.To solve this problem, a flexible supply contract with duoptions model (SCDO) in a single-supplier single-buyer supply chain from the perspective of buyer and supplier is studied. It formulates both buyer and supplier's expected profit functions and derives the buyer's optimal ordering decisions. In numerical study,parties' optimal decisions are described. Based on the newsvendor model and focus on, it is proved that SCDO can improve the parties' expected profits and aimed at the centralised system, it illustrates the improvement of SCDO to the supply chain's performance.In the end, it analyzes the characteristics of SCDO and the comparison with other option-based contracts. In characteristics, the more accurate the market demand predicted by the buyer, the SCDO more valuable. In comparison, the supplier using SCDO can always get more expected profits than SCCO (Wang Q, Tang O, Tsao D.2006), and when lower vs or higher vb, the buyer using SCDO can always get more expected profits than SCCO. Compared with SCDO, the buyer's expected profits are higher and the supplier's expected profits lower in SCPO (Luo Qiang. 2014). Moreover,both buyer and supplier's expected profits are lower in SCBO (Zhang Kai. 2013).