Journal
INTERNATIONAL TRANSACTIONS IN OPERATIONAL RESEARCH
Volume 26, Issue 4, Pages 1451-1474Publisher
WILEY
DOI: 10.1111/itor.12372
Keywords
supply chain management; risk management; put option contracts; inflation; rising retail price; shrinking consumer demand
Funding
- National Natural Science Foundation of China [71432003, 71272128]
- Program for New Century Excellent Talents in University [NCET-12-0087]
- Specialized Research Fund for the Doctoral Program of Higher Education of China [20130185110006]
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This paper considers a supply chain consisting of a supplier who manufactures one type of perishable products characterized by a long lead time and a retailer who purchases the products from the supplier and sells them to end consumers. In order to hedge against the risks of price and demand caused by inflation, portfolio contracts with put options, namely, a combination of wholesale price contracts and put option contracts, are adopted by the retailer to obtain the products from the supplier. We characterize the optimal ordering and production policies for the retailer and the supplier in the presence of put option contracts under inflation. By comparing with the case without put option contracts, we discuss the effect of put option contracts on the supply chain and prove that the usage of put option contracts benefits these two members under inflation. Through several numerical examples, we illustrate the effect of inflation on the supply chain with and without put option contracts. On this basis, we design a feasible supply chain coordination strategy based on put option contracts under inflation.
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