Option contracts in managing a humanitarian relief supply chain: double vs. bidirectional

Abstract

Owing to the high unpredictability of disasters, relief supplies are usually pre-positioned in advance, thereby making relief supplies management very challenging. The introduction of option contracts can improve disaster relief efficiency and performance. Considering this motivation, this paper separately introduces double and bidirectional option contracts into the humanitarian relief supply chain. The value and choice of two option contracts are investigated not only from the economic perspective but also from the sustainable perspective. The results show that two option contracts can always benefit the buyer and the disaster victims, but cannot always benefit the supplier, compared to the wholesale price contract. If the wholesale price is relatively high (low) and the bidirectional option purchase price is relatively low (high), the buyer and the disaster victims prefer the bidirectional (double) option contract while the supplier prefers the double (bidirectional) option contract.