Title: Option and capacity reservation contracts in a supply chain

Authors: Alejandra Gomez-Padilla; Tsutomu Mishina

Addresses: Department of Industrial Engineering (CUCEI), University of Guadalajara, Av. Revolucion No. 1500, Guadalajara, Jalisco, Mexico ' Department of Management Science and Engineering, Akita Prefectural University, 84-4 Ebinokuti, YuriHonjo, Akita, Japan

Abstract: This paper considers a dyadic supply chain formed by one retailer and one supplier, and compares the performances for both companies and for the whole chain as a single unit under two types of contracts: option and capacity reservation contracts. Under an option contract, the retailer orders a quantity of units and has a right to modify his order in any sense (it may be bigger or smaller than the initial order), without restrictions by buying the option premium in advance from the supplier. Under a capacity reservation contract, the retailer reserves a number of units from the supplier and after receiving more information about demand, he will pass his final order. Firstly, the theoretical bases are introduced for each contract, next both models are compared, then simulation results are presented and discussed, and finally, we concluded.

Keywords: option contracts; capacity reservation contracts; supply chain management; SCM; retailers; suppliers; retailer performance; supplier performance; supply chain performance.

DOI: 10.1504/IJISE.2013.052276

International Journal of Industrial and Systems Engineering, 2013 Vol.13 No.3, pp.266 - 279

Available online: 26 Feb 2013 *

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