Title: Supply chain coordination for short-life-cycle products with option contract and partial backorders

Authors: Hui-Ming Wee; Wan-Tsu Wang

Addresses: Department of Industrial and Systems Engineering, Chung Yuan Christian University, No. 200, Chung-Pei Rd., Chung-Li (32023), Taiwan ' Department of Industrial and Systems Engineering, Chung Yuan Christian University, No. 200, Chung-Pei Rd., Chung-Li (32023), Taiwan

Abstract: This paper develops a newsboy problem with option contract and partial backorders. In this option contact policy, if the demand exceeds the order quantity, the retailer may have a second replenishment opportunity to order an option quantity from the manufacturer in order to fulfil its backorders. The study derives the optimal solutions for an integrated and decentralised system with a single manufacturer and retailer. The result shows that the integrated system has a greater profit than the decentralised system irrespective of the backordering rate. When the backordering rate is greater than a certain value, the optimal decision is to backorder all the demand from the option quantity. This study provides managerial insights in selecting a revenue-sharing contract to obtain the optimal price and order/option quantity that maximises the supply chain profit. [Received 24 November 2010; Revised 19 February 2011; Revised 07 May 2011; Accepted 21 June 2011]

Keywords: supply chain coordination; newsboy problem; option contracts; partial backorders; revenue sharing; supply chain management; SCM; short lifecycle products; supply chain profit.

DOI: 10.1504/EJIE.2013.051595

European Journal of Industrial Engineering, 2013 Vol.7 No.1, pp.78 - 99

Received: 08 May 2021
Accepted: 12 May 2021

Published online: 22 Jan 2013 *

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