Abstract
The paper explored the conditions for retailers to implement option contract and the strategies to make joint purchase in spot market. Under the condition of uncertain market demands, a joint purchase model integrating batch ordering, option contract and spot market has been developed. Considering price fluctuation, the conditions for implementing option contract-based ordering have been studied; the impacts of price fluctuation and option execution price on retailers optimal ordering of joint purchase have been analyzed as well. The result shows that if a retailer adopts a joint purchase strategy, certain constraints need to be met. Otherwise, it is more conductive for the retailer to maximize revenues by adopting a single purchase order. When the spot market is involved, the total order quantity and the order quantity of option contract are negatively correlated with the option execution price and are positively correlated with the spot price fluctuation; and, the order quantity of bulk order contract is positively correlated with the option execution price and is negatively correlated with the spot price fluctuation.
Highlights
The option contract brings about a risk sharing mechanism for purchase management of supply chain
This paper focuses on two issues: 1) the conditions and strategies for selecting the correct purchase channel after the forecasting information is made by the retailer; and 2) the impacts on the optimal purchase quantity of the retailer imposed by the key factors such as the fluctuation of the spot market price and the option execution price
This paper focuses on the joint purchase and order strategy integrating the bulk order contract, the option contract and the spot market for retailers
Summary
The option contract brings about a risk sharing mechanism for purchase management of supply chain. Inderfurth and Kelle (2011) revealed in their study of joint purchase strategies under the condition of reserve capacity and purchase in he spot market and analyzed the impacts on supply chain coordination imposed by factors such as market price fluctuation, cost and inventory strategies. Merzifonluoglu (2015) discussed mixed order strategies of retailers who purchase by integrating long-term contracts, option contracts and spot purchase under varied risk attitudes when the market demand, spot price and spot market were involved in different ways. This paper focuses on two issues: 1) the conditions and strategies for selecting the correct purchase channel after the forecasting information is made by the retailer; and 2) the impacts on the optimal purchase quantity of the retailer imposed by the key factors such as the fluctuation of the spot market price and the option execution price
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