Buyback Contract Research Articles

Price optimization in supply chain agreements: a comparative analysis of buyback and put option contracts for inventory risk management

AbstractThis paper aims to provide a model of a supply chain in the integrated system and obtain its optimal decision variables. The paper introduces buyback and put option contracts to reduce inventory risk. These contracts were compared in three different cases via a numerical analysis approach. In the first case, the holding cost (h) of a retailer for surplus orders in the buyback contract is equal to the option price (o) in the put option model. The relationship between exercise price (e) in the put option model and buyback price (b) in the buyback contract was obtained by comparing the optimal values in the models. This study found that the exercise price in the put option contract will be greater than the buyback price. Furthermore, it is more likely that the retailer gave more benefits under the buyback agreement than the time the retailer chooses the put option contract. Therefore, it can be concluded that if the retailer chooses the buyback agreement in this situation, can gain more benefits. The study provides essential managerial insights to compare agreements and presents recommendations to choose a suitable contract.

Full Quantity or Full Credit? Choosing the Right Buyback Policy for a Behavioral Retailer

Problem definition: Despite extensive research on buyback contracts in supply chain management, little attention has been given to a direct comparison between a traditional full-quantity, partial-credit (FQ) buyback contract and an alternative full-credit, partial-quantity (FC) contract, especially when considering the behavioral biases of the retailer. This study aims to fill this research gap by exploring how these biases influence contract performance and offer practical guidelines for suppliers. Methodology/results: Through controlled laboratory experiments and structural model estimation, we show that the ordering decisions made by human retailers are jointly affected by three behavioral biases—loss aversion, prospective accounting, and psychological cost of inventory error—and these biases differ in magnitude between the two contracts. Incorporating these biases into a behavioral retailer’s utility function, we then analytically examine which buyback policy the supplier should choose. When the wholesale price is exogenously given, the supplier should adopt the FC contract for high-margin (low-cost) products. Conversely, when the supplier has the power to set both the wholesale and buyback prices, the FC contract is generally more beneficial for low-margin products. Finally, when the product cost is sufficiently high, a wholesale price contract may be advantageous over buyback policies. Managerial implications: The managerial implication of this paper is significant for suppliers who have to choose between different buyback policies. The paper suggests that the supplier should carefully consider not just the economic, but also the behavioral dimensions when making contract decisions, particularly when dealing with a retailer influenced by behavioral biases. Specifically, the choice between FQ and FC contracts is influenced by two key environmental factors: the production cost of the product and the nature of wholesale pricing. Understanding these elements allows suppliers to be flexible in contract choices and design appropriate return policies for their downstream supply chain partners. Funding: P. Yu was supported by the National Natural Science Foundation of China [Grants 72371038 and 72033003] and the Fundamental Research Funds for the Central Universities [Grant 2024CDJSKPT16]. T. Feng was supported by the National Natural Science Foundation of China [Grant 72131004]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2023.0574 .

The impact of retailer regret in two-stage supply chains: Various structures and buyer power

In a two-stage supply chain (SC) without a buy-back contract, retailers may encounter two types of regrets stemming from demand uncertainty, under-ordering regret and over-ordering regret. We examine the effect of retailer regret on decision making within a competitive environment characterized by many-to-many relationships considering retailers’ buyer power under different SC structures (i.e., various numbers of retailers and suppliers). Furthermore, we compare the impact of regret with and without retailers’ buyer power. We find that: (1) The two types of regret influence the retailers’ order decisions in different directions, and retailers with high-margin (low-margin) are more sensitive to over-ordering (under-ordering) regret, while both types of regret contribute to an elevation in the wholesale price. (2) The effect of regret on SC profits varies depending on the structure of the SC and it may shift from being beneficial to harmful as the number of retailers increases. (3) Regret exhibits a similar influence on equilibrium decisions irrespective of the presence of buyer power, while the effect of regret on SC profits does not vary under different structures when there is no buyer power. The competition among retailers and suppliers in a decentralized SC alters the impact of regret on equilibrium and profit, particularly when retailers possess buyer power. To avoid the adverse effect of retailer regret, we recommend SC retailers take the SC structure and buyer power into account to maximize SC performance. Such findings are crucial to the development of any decentralized SC without buy-back contracts.

Examining supply chain financing: A comparative and coordination analysis under a buyback contract

This paper focuses on financing schemes for a supply chain with high salvage values of unsold products. Combining the buyback contract with a partial credit guarantee (PCG) contract and trade credit (TC) contract, we propose two financing schemes, PCG-Buyback and TC-Buyback, to provide flexible financing services for a capital-constrained retailer and obtain equilibrium strategies of each supply chain member. Furthermore, for PCGBuyback, this paper obtains a Pareto coordination frontier consisting of the credit guarantee coefficient and the buyback price at different initial capital levels, which is more flexible to achieve supply chain coordination. Finally, we analyze the manufacturer’s strategic choices of PCG-Buyback and TC-Buyback in terms of credit guarantee coefficient, buyback price, and financing rate. Our results show that PCG-Buyback is the optimal financing scheme for the manufacturer when both the credit guarantee coefficient and buyback price (or financing rate) are low; otherwise, TC-Buyback is the dominant strategy. This study explores how the risk-sharing mechanism combination of PCG and buyback contracts can provide a more flexible approach to supply chain coordination. Additionally, it highlights the significance of the manufacturer selecting a better financing scheme based on its individual characteristics.

THE MODERN OIL INDUSTRY IN IRAN: A HISTORICAL PERSPECTIVE AND REVIEW

The production of petroleum substances has a long historical tradition in Iran. Glance (1970) reported that the “first man‐made oil well was dug” in the ancient city of Susa (present‐day Shush), about 40 km northwest of Ahwaz, in 500 BC during the reign of the Achaemenid emperor Darius I. Writing in the fifth century BC, Herodotus described petroleum production near a place called Ardericca, probably present‐day Masjed Soleyman, located 210 furlongs from Susa (Lees, 1950). The petroleum substances produced included bitumen which was used in construction and the waterproofing of ships. Sorkhabi (2005) detailed the petroleum history in Iran during ancient and medieval times.The modern quest for oil in Iran dates from the second half of the 19th century. From a historical perspective, this modern period can be divided into six distinct phases: (i) The early years, 1872–1900; (ii) The Anglo‐Persian years, 1901–1932; (iii) The Anglo‐Iranian Years and Nationalization, 1933–1953; (iv) The second Pahlavi years, 1954–1978 including the rise of OPEC; (v) The Islamic Revolution and Iran‐Iraq War, 1979–1989; and (vi) Buyback Contracts and US Sanctions, 1990–Present. The search for oil was singularly unsuccessful during the first of these phases and the early years of the second phase. However, after a difficult six‐year exploration campaign, oil in commercial quantities was struck in the early hours of 26 May, 1908 at Maidan‐e Naftun, which in later years achieved world fame as the Masjed Soleyman oil field. Since then, more than 120 oil and gas field discoveries have been made in Iran's onshore areas and its territorial waters in the Persian Gulf.The story of oil has always been an emotive and politically charged issue in Iran and has been the focus of great national interest and debate for over a century. Certainly, the discovery in 1908 marked a milestone in Iran's 20th century history: it ushered in a new era – an era not only of progress and prosperity, but also of social and political upheaval and turmoil that has not yet ended (Ala, 2007). In this paper, important events in each of the historical phases identified above are briefly reviewed. Emphasis is placed on the emergence of the modern petroleum industry in Iran, and the early phases are covered in particular detail.

The Application of Electronic Information Technology in Building Engineering

At the present stage, the degree of social information intelligence continues to increase, electronic information technology has been widely used in various industries, has become an important part of People's Daily life. Electronic information technology can also promote the development and progress of enterprises, most of the enterprises have begun to use electronic information technology in the process of development, it can be seen that the electronic information technology has considerable prospects for development, this paper analyzes the construction engineering enterprises for the use of electronic information technology, hoping to provide a certain reference to the relevant personnel. The paper firstly reviewed the classic newsvendor model and expounded the establishment and solution to the model. Then the model of the supply chain system was established based on the classical newspaper model. Finally, based on the basic theory of repurchase contract, a repurchase agreement was established. The supply chain buyback contract under the newsvendor model can not only realize the coordination of supply chain, but also realize the distribution of profit in the supply chain.

Optimal multichannel distribution strategies with limited capacity and uncertain demand

In reality, either the supplier or the manufacturer may launch new high-tech final products, in which case the demand is highly uncertain and the supplier’s capacity for the critical component may be limited. This paper establishes a game-theoretic model consisting of a manufacturer and a supplier with constrained capacity who not only supplies the critical component to the downstream manufacturer but also produces its final products. In this case, both the manufacturer and supplier face the newsvendor problem. We investigate the supplier’s optimal distribution strategies, the manufacturer’s ordering decisions, and the impact of the supplier’s limited capacity on supply chain operations when both the manufacturer and supplier confront demand uncertainty in the end market. Our results show that the supplier can choose among different distribution strategies, that is, the dual channel, the supplier-only, and the sole seller in the market, depending on the capacity and the relative profitability of the supplier’s and the manufacturer’s final products. Overall, the limited capacity will result in a significant loss to the supply chain. Further, double marginalization can be alleviated by the limited capacity and its variation with capacity depends on the relative profitability of the supplier’s and manufacturer’s final products. To coordinate the supply chain, we examine different contracts and demonstrate that our proposed two-sided revenue-sharing contract and the two-sided buyback contract could achieve effective coordination.

Supply chain coordination based on mean-variance risk optimisation: pricing, warranty, and full-refund decisions

ABSTRACT This study focuses on optimising sales of different brands of a single-product supply chain model that consists of several manufacturers and a retailer. The price and quality of the products drive competition between manufacturers who sell a single product through a retailer to the customers. This study aims at maximising the profit values of the retailer and manufacturers, simultaneously. Accordingly, four scenarios are defined with respect to the different contracts, including the cost sharing, profit sharing, revenue sharing, and buyback. Mean-variance risk management is applied to the proposed models. A full-refund return policy and warranty are also considered. A novel hybrid metaheuristic that combines the advantages of the group search optimiser (GSO) and human behaviour-based optimisation (HBBO) algorithms, entitled ‘GSO-HBBO’ algorithm is provided to find the high-quality solutions in fewer numbers of the iterations. The performance of the GSO-HBBO algorithm is compared with the GSO and HBBO algorithms based on different measures such as quality of the generated solutions and CPU-Time. The results show that the presented algorithm generates much better solutions than GSO and HBBO algorithms in a reasonable time. The managerial insights confirmed that the profit-sharing and buyback contracts make the most profit for both manufacturer and retailer.

Inventory competition and quality improvement decisions in dual-channel supply chains with data-driven marketing

The digital dual-channel supply chain (DSC) is getting more and more difficult to ignore. This study develops a data-driven DSC, including an online manufacturer and an offline retailer with stochastic demand. Then it discusses the effects of the selling price, wholesale price, stock-out-based substitution rate, Data-Driven Marketing (DDM), and two channels’ sensitivity of product quality on the optimal decisions (quality improvement effort, online inventory level, and offline order quantity), and the optimal expected profits. It also analyzes the coordination of the manufacturer’s buyback contract. This work is mainly concluded as follows: (1) Increases in DDM quality can increase inventory levels in both channels and efforts to enhance quality, but they can also lower customer return rates, which makes sense. However, it is not always true that DDM quality positively affects the total supply chain expected profit. (2) The decline of one channel’s stock-out-based substitution rate can raise its inventory level but decrease the inventory level of the competitive channel. Contrarily, the selling price of one channel is adversely connected with the inventory level of the competitive channel, which extends some existing studies under a decentralized decision. (3) The increase of sensitivity of product quality can lead to the growth of quality improvement efforts (consistent with previous literature) and the reduction of consumer return rate. (4) The manufacturer’s buyback contract can well coordinate both members under stochastic demand for Pareto-optimality. Finally, this study proposes some managerial implications and further research directions.

Credit coguarantee loan buyback contracts: Equilibrium and coordination strategies

Buyback guarantee financing requires core enterprises to provide both a buyback policy and a credit guarantee. The recent economic downturn has severely weakened the credit guarantee capacities of enterprises. Guarantee companies (GCs) that provide financing credit guarantee services address this issue specifically and have attracted considerable attention. We consider incorporating a GC into the supply chain to fully coguarantee with core enterprises, introduce risk compensation into the model to hedge against default risk, and formulate a multilevel Stackelberg game with the GC as the leader. A credit coguarantee loan buyback (CCLB) contract, integrating a credit coguarantee loan and a buyback contract, is designed to analyze equilibrium strategies. Additionally, we explore the coordination conditions for the CCLB contract and perform numerical analysis to illustrate its effectiveness. The optimal decisions under different financing scenarios are comparatively analyzed to show coguarantee effectiveness. We also investigate the value of CCLB compared to trade credit finance. We find that a higher decentralized optimal order quantity depends on a lower service fee rate, or a higher buyback price and return rate in some cases, while the optimal service fee rate is conditional on the coguarantee share and risk compensation ratio. The results reveal that with appropriate parameters, the proposed contract can achieve coordination. For a supply chain with a higher buyback price and return rate or greater risk compensation, GCs prefer to join; otherwise, they either cover a lower risk or charge a higher service fee rate to achieve a sustainable credit guarantee business.

Green Supply Chain Coordination Considering Carbon Emissions and Product Green Level Dependent Demand

As traditional supply chains face increasingly severe environmental issues, and as countries promote green development and sustainable development policy concepts, cultivating green supply chain operation models is gradually coming to be highly valued by governments and enterprises. Generally speaking, the production of green products incurs higher additional costs, and thus, their total production costs also increase. In this work, we studied the coordination mechanism, by considering carbon emissions and product green level dependent demand, in which the product green level is related to the random demand. Under the green supply chain buyback contract with the green product R&D cost sharing between the manufacturer and the retailer, both the product green level and the order quantity need to be decided, to maximize the channel profit. In order to coordinate the green supply chain, the manufacturer needs to share both the risk of good salvage and the green product R&D cost with the retailer. We found that both the wholesale price and the buyback price increase in the manufacturer’s proposition of the green product R&D cost, but decrease in the emission reduction efficiency coefficient or carbon trading price. In addition, the product green level, the optimal order quantity and the channel profit increase in the emission reduction efficiency coefficient, but decrease in the R&D cost coefficient of the product green level. Interestingly, we found that if the carbon trading price is low, the manufacturer will set a low product green level, and the product carbon emission trading is a cost for the supply chain. The increment of the carbon trading price leads to a higher cost, such that the channel profit is decreased. However, if the carbon trading price is high, the manufacturer will set a high product green level, and the product carbon emission trading is a revenue for the supply chain. The increment of the carbon trading price leads to a higher revenue, such that the channel profit is increased.

Dual‐channel supply chain coordination under risk aversion and fairness concerns

AbstractThis paper studies coordination in a dual‐channel supply chain consisting of a risk‐averse retailer with fairness concerns and a risk‐neutral and fairness‐neutral manufacturer where the market demand and manufacturer yield are both uncertain. Based on CVaR criterion and fairness concern theory, a dual‐channel supply chain decision‐making model for the risk‐averse retailer with fairness concerns is constructed, and the optimal decision under centralized and decentralized dual‐channel supply chains is discussed. A new joint contract formed from revenue‐sharing and buyback contracts is presented to coordinate the dual‐channel supply chain under yield and demand uncertainty conditions that realizes Pareto improvement. The influences of yield and demand uncertainties, the risk aversion coefficient, and the fairness concern coefficient on retailer‘s order quantity, retailer's expected utility function value, manufacturer's planned yield, and manufacturer's expected utility function value are analyzed through numerical examples. The feasible range of Pareto improvement under the joint contract is also discussed.

Coordination of closed loop supply chains through buyback contract

ABSTRACT This paper focuses on the coordination issues in the context of a CLSC system comprising a manufacturer and a retailer. We develop mathematical models under a buyback contract in the forward supply chain (FSC) with and without Stackelberg gaming. Compared to the case with no contracts, the numerical analysis carried out shows that the proposed models consistently provide better total SC profit, enhance the manufacturer’s profit and, in many cases, improve both players’ profits. For the model without gaming, we derive values for the buyback price that coordinate the SC and further derive ranges for the parameters where both partners are better off profitwise as compared to the no-contract case under the Stackelberg game scenario. The numerical analysis indicates that the non-gaming model always outperforms the gaming one in terms of total SC expected profit and suggests that for higher demand uncertainties, the SC members are better off profitwise at lower values of the buyback price.

Supply chain price variability under the buyback contract

ABSTRACT Supply chain price variability, also known as the “Bullwhip effect in Pricing (BP),” refers to the absorption or amplification of the variability of prices from one stage to another in a supply chain. This article derives analytical conditions that result in BP considering a buyback contract and conducts numerical simulations to gain further insights. For this, a joint price and replenishment setting newsvendor model with a wholesale-Stackelberg game is considered. Two demand types (linear and isoelastic) are analyzed along with uniformly and normally distributed additive and multiplicative uncertainties. The outcome of this research reveals that the main influential factors that affect BP are the structure and error type of the demand functions. Absorption (amplification) in price fluctuations occurs for linear (isoelastic) demand cases. Moreover, the price variances and BP ratios differ under the buyback and wholesale-price-only cases. The overall results help understand the fluctuation of market prices under various conditions.

Investigation of the ordering behavior of a retailer in the revenue sharing and buyback contracts considering round number bias

This study investigates the ordering behavior of a boundedly rational retailer who purchases a product from a rational supplier under a revenue sharing or buyback contract. We develop a behavioral model considering random error, learning effect and anchoring bias using a logit choice framework which also includes a new behavioral paradigm known as round number bias. Experimental data and theoretical analysis are employed to demonstrate the differences between retailer order quantity and related optimal decisions using the suggested behavioral model. We found that round numbers are enticing anchors in retailer ordering decisions. The findings further reveal that the adaptive learning model better explains and predicts the retailer's ordering behavior than the time trend learning model. Moreover, the results indicate that the prediction accuracy of the model is higher for revenue sharing compared to buyback contracts.

Long-Term Scenario Analysis of Electricity Supply and Demand in Iran: Time Series Analysis, Renewable Electricity Development, Energy Efficiency and Conservation

Electricity plays a vital role in the economic development and welfare of countries. Examining the electricity situation and defining scenarios for developing power plant infrastructure will help countries avoid misguided policies that incur high costs and reduce people’s welfare. In the present research, three scenarios from 2021–2040 have been defined for Iran’s electricity status. The first scenario continues the current trend and forecasts population, electricity consumption, and carbon dioxide emissions from power plants with ARIMA and single and triple exponential smoothing time series algorithms. As part of the second scenario, only non-hydro renewable resources will be used to increase the electricity supply. By ensuring the existence of potential, annual growth patterns have been defined, taking into account the renewable electricity generation achieved by successful nations. The third scenario involves integrating operating gas turbines into combined cycles in exchange for buyback contracts. Economically, this scenario calculates return on investment through an arrangement of various contracts for the seller company and fuel savings for the buyer.

Strategy Analysis for Retailer-Leading Supply Chain under Buyback Contract with Focus Theory of Choice

This paper investigates a retailer-leading two-tier supply chain with a buyback contract under market demand uncertainty, where the retailer first announces a potential maximal order quantity and the supplier then provides a unit wholesale price to influence the retailer’s order quantity. In recent years, an increasing number of experimental studies have reported that even in repeated multi-turn games, the decisions of suppliers viewed as newsvendors deviate significantly from the expectation-maximizing options. In light of this observation, we employ the focus theory of choice to characterize suppliers’ behavioral tendencies and theoretically derive optimal unit wholesale prices based on suppliers’ focus preferences. With these results, we further explore how suppliers’ foci may influence the interactions between the retailer and the supplier. We find that when the supplier takes the positive evaluation system as the decision criterion, optimism degree and confidence level have a negative effect on the wholesale price and a positive effect on the final order quantity, and the final order quantity must be located between the most possible market demand and the upper limit of the market demand. This paper provides a behavioral perspective to analyze suppliers’ optimal responses and their influences on retailers’ decision-making. Theoretical and numerical analyses gain managerial insights for retailers to make decisions when faced with suppliers with different focus preferences.

Contract design and comparison under the opportunity cost of working capital: Buyback vs. revenue sharing

In previous research, buyback and revenue sharing contracts are regarded as equivalent in terms of the final profit and coordination ability. However, if the opportunity cost of working capital (OCWC) is considered, the parameters, coordination nature, and relative performance of the two contracts may vary with their payment structure. Considering the OCWC, we investigate the above phenomenon in two scenarios. The first is based on the decisions made with the objective of maximising accounting profit (not including OCWC). We reveal, for the first time, the relative financing effect between these two contracts, and show that these decisions may lead to managers’ misjudgement. Firms that recognise the impact of opportunity cost will exhibit different preferences between the two originally equivalent contracts. In the second scenario, we examine and compare the two contracts with the decisions based on economic profit (including OCWC) maximisation. We show that a buyback contract may degenerate into a wholesale price contract, while a revenue sharing contract may degenerate into a full credit contract. Moreover, revenue sharing contracts are Pareto dominated by buyback contracts when the supplier’s opportunity cost is higher than that of the retailer, and vice versa. Unexpectedly, the two contracts may achieve super coordination of the supply chain in terms of economic profits. These findings clarify how managers should use supply chain contracts when the opportunity cost of capital cannot be ignored.

Coordinating Buyback Contract in Supply Chains with Limited Funding

The paper considers the problem of supply chain profit maximization with the buyback contract. The solution is given for a two-echelon supply chain where a retailer is faced with limited funding and chooses between bank financing and trade credit provided by a supplier. It is shown that the buyback contract does not coordinate the considered supply chain as the supplier’s profit in this case does not achieve its maximum. Therefore conditional coordination of the supply chain with limited funding is considered. It identifies the situation where the retailer’s and the supply chain’s profits are maximized while the supplier’s profit is greater than that earned with the wholesale-price contract. It is proved that the examined supply chain achieves conditional coordination both with bank loan and trade credit, and trade credit is preferred to bank financing as the supply chain’s individual and total profits are higher than those earned with bank loan. Based on the model solution an algorithm for selecting the parameters of conditionally coordinating buyback contract with limited funding is proposed.

Does a Buyback Contract Coordinate a Reverse Supply Chain Facing Remanufacturing Capacity Disruption and Returned Product Quality Uncertainty?

This paper studies a two-echelon reverse supply chain (RSC) involving a remanufacturer and a collector, in which the collector receives the used products by paying a reward to consumers. The reward amount given to customers is crucial for encouraging them to exchange used products. An exchanged item is accepted if it meets the minimum acceptable quality level (AQL). Both the remanufacturing capacity and the quality of exchanged products present uncertainties. Under the buyback contract, the remanufacturer purchases used products at a higher price than in the decentralized and centralized cases from the collector. In return, the collector undertakes to repurchase a certain number of used products sold to the remanufacturer, but not remanufactured due to capacity shortages. Based on the aforementioned uncertainties, this study analyses channel coordination using buyback contracts and optimizes its parameters. By conducting a numerical analysis, we first ensure that under this contract, the risk of uncertainty is divided among the members, and that each party’s profit is higher than when decisions are made individually. Therefore, a buyback contract would guarantee a win-win situation for both of the parties, and coordination for the RSC. A range of percentages of extra items purchased by collectors is derived, as well as the amount the collector pays for each item and the effect of increasing or decreasing these values is examined.