Perishable Product's Supply Chain Coordination with Option Contract Under Two Production and Ordering Modes

Abstract

Through incorporating option mechanism, quantity flexible strategy and quick respond strategy into perishable products' supply chain, this paper establishes the gamble models of retailer's initial order, option purchase and manufacturer production under two production and ordering modes. If manufacturer and retailer share products demand information, manufacturer can decide first period's proper production through retailer's initial order and option purchase in order to make his own profit and the whole supply chain optimization. Comparing with two flexible production modes without option mechanism, retailer may get higher expected profit and reduce his managing risk in the condition of the whole supply chain's optimal expected profit without changed; comparing with two period production modes having option mechanism and only one ordering opportunity, retailer will purchase less option and may get higher expected profit and manufacturer may also get higher expected profit.