Supply Contract with Bidirectional Options to Improve the Performance of a Decentralized System

摘要

To improve the performance of the traditional decentralized supply chain with one buyer and one supplier, this paper studies the supply contracts with bidirectional options which allow the buyer to adjust the initial order both upward and downward. We analyzed the contracts from both parties' perspective and derived a closed-form formula of the buyer's optimal decision. To obtain the supplier's optimal decision, a numerical study is provided. In the numerical study, we also calculated the profit of the buyer, supplier and supply chain, respectively. By the numerical results, we derived that using options can improve all of their profit compared the traditional supply chain.