Abstract
To coordinate the supply chain risk caused by demand uncertainty, this paper proposed a flexible return strategy under demand uncertainty, in which the retailer can choose return quantity independently by put option after the selling season, while the return quantity is usually determined by the supplier in the classical return strategy. In our novel return strategy, the exercise price is not fixed, and we developed the base model of this strategy, named the selective buyback contracts model. We have solved the optimal pricing and ordering strategies of supply chain members. Numerical studies demonstrated that the contracts can coordinate a supply chain with one retailer and one supplier, and the supplier can adjust the profit distribution of the supply chain by adjusting the option exercise price. Compared with other return strategies, the selective buyback contracts give the retailer more power of choice, and the supplier receives risk compensation from the put options.
Highlights
We introduce put option contracts in traditional buyback contracts, and named it the selective buyback contract, which can transfer the right of return quantity decision from suppliers to retailers
When the option exercise price r of the flexible return strategy is equivalent to the buyback price b of the classical return strategy, and when the option contract price s = 0, Q = Q∗b and q = Q can be obtained from Equations (7) and (17)
We proposed a flexible return strategy with a put option, in order to coordinate the supply chain risk caused by demand uncertainty
Summary
Our work brings together streams of supply chain risk management, supply chain contract, and option contracts. Its effective execution requires a strong supply chain leader who can control all links from design, Mathematics 2021, 9, 2097 production, to retail, so that other members of the supply chain will implement the plan of this strong leader Among these contracts, buyback contracts are widely used in perishable products’ supply chains because they can reduce the retailers’ inventory risk. It has been shown that an option contract can provide suppliers and retailers with flexibility to share risks caused by uncertain demand, and improve supply chain performance. The above-mentioned supply chain contracts containing options are usually called buyback contracts, but their essence is a kind of flexible quantity contract, because the execution of the option occurs in the ordering stage before the sale, rather than after the sales season At this time, the option coordinated is the risk brought by the order quantity, not the risk brought by the remaining inventory. Different from other strategies where the option execution occurs in the ordering stage before the sales season, in the selective flexible return strategy, the option execution occurs at the end of the sales season, and the amount of repurchase is determined by the retailer
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