Study On Put Options In An Inflexible Supply Chain

By studying put options in an inflexible supply chain made up by one retailer and one supplier from retailer’s perspective,this paper obtains several suggestions about put options in an inflexible supply chain.In such an inflexible supply chain,the supplier only have one chance to produce and the retailer cannot adjust the initial order during the selling season because of the long lead time and short selling season.Based on the prices provided by the supplier,the retailer purchases put options to obtain the flexibility of downward adjustment at the beginning of the planning horizon.During the lead time,the retailer updates the information of market demand.Before the selling season,the retailer decides whether exercise put options or not and the amount of exercised options.The supplier will deliver the final order to the retailer.This paper studies the supply contract of put options from the following aspects.Firstly,this paper considers the retailer’s profits after introducing put options.By studying the retailer’s decisions under the variation of different parameters,this paper proves that put options can improve the retailer’s performance,especially when the savage value is low and shortage cost is high.Secondly,this paper also obtains the retailer’s decisions under the call options and the bidirectional options.In order to do further study on the characteristics of put options,the paper compares the put options to the other two options from the retailer’s perspective.Thirdly,the mechanism of the put options in this paper includes two decision points.Although the retailer’s performance at the beginning of planning horizon(the first decision point)is proved to be improved,it is difficult to say the supply contract of put options also improves the retailer’s performance at the second decision point(before the selling season).That is,introducing put options may bring about risks to the retailer.Therefore,this paper also studies on whether introducing put options brings risk to the retailer and obtains the two risk parameters,i.e.the maximum risk and the probability of risk.Fourthly,this paper considers a risk-averse retailer and obtains the risk-averse retailer’s optimal decision by introducing the CVaR theory into supply contract of put options.Then,this paper studies whether the attitude of risk-aversion could avoid risk.Finally,the supply chain of the pasteurized milk is studyed in this paper.Because of excessive cost of over inventory,the retailer in the supply chain of the pasteurized milk always tend to averse risk.Since put options provide the retailer the right to decrese the initial order which is well match with scuh supply chain,this paper redesigns the pasteurized milk supply chain by introducing put options and demonstrates its effectiveness and practicability.Milewhie,this paper provide a reference for applying put options into an inflexible supply chain from sevsel aspects.