Supply chain product innovation considering jointly held options under uncertain demand

Demand uncertainty substantially impacts the optimal decision for supply chain innovation investment despite the recognized importance of new product and technology investment in the supply chain. To this end, an improved real options game model is provided to analyze the influence of various supply chain operating decisions on optimal investment timing and the option value of supply chain firms. According to the findings, market demand volatility and drift rate are favorably connected with the investment threshold, whereas the profit distribution coefficient negatively correlates with the firm investment threshold. Compared with decentralized decision-making, centralized decision-making in the supply chain has the highest investment efficiency and more excellent investment option value. However, choosing it is difficult, particularly when market volatility is high. Surprisingly, the quantity discount contract aid in resolving this issue.

Automated summary

Demand uncertainty has a significant impact on the optimal decision for supply chain innovation investment. An improved real options game model analyzes the influence of various supply chain operating decisions on investment timing and option value. Market demand volatility and drift rate are positively related to the investment threshold, while the profit distribution coefficient is negatively correlated. Centralized decision-making in the supply chain has the highest investment efficiency and better investment option value. However, choosing this option is challenging, especially in high market volatility. Surprisingly, the quantity discount contract helps resolve this issue.