Supply chain coordination with an option contract under vendor-managed inventory

In this paper, we propose an option contract for a two‐echelon supply chain operating under vendor‐managed inventory (VMI). We find that the supply chain coordination and Pareto improvement can be achieved synchronously. As a comparison, a subsidy contract is introduced to coordinate the supply chai...

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Bibliographic Details
Published in:International transactions in operational research 2016-11, Vol.23 (6), p.1163-1183
Main Authors: Cai, Jianhu, Hu, Xiaoqing, Han, Yi, Cheng, Haifang, Huang, Weilai
Format: Article
Language:English
Subjects:
Contracts
coordination
Inventory management
inventory theory
Mathematical models
Operations research
option contract
Pareto optimality
Replenishment
Studies
Subsidies (financial)
Supply chain management
Supply chains
Tactics
vendor-managed inventory
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Summary:In this paper, we propose an option contract for a two‐echelon supply chain operating under vendor‐managed inventory (VMI). We find that the supply chain coordination and Pareto improvement can be achieved synchronously. As a comparison, a subsidy contract is introduced to coordinate the supply chain. The paper further considers the influence of a replenishment tactic on the performance of the supply chain. After introducing a replenishment tactic, the supply chain can replenish the products to satisfy unmet demand during the selling season. We further use an option contract to coordinate the supply chain, and a Pareto improvement can be gained. All our findings are numerically illustrated.
ISSN:0969-6016
1475-3995
DOI:10.1111/itor.12172