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

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

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Article ID: iaor20162903
Volume: 23
Issue: 6
Start Page Number: 1163
End Page Number: 1183
Publication Date: Nov 2016
Journal: International Transactions in Operational Research
Authors: , , , ,
Keywords: inventory, programming: multiple criteria, combinatorial optimization
Abstract:

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.

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