Supply chain coordination with an option contract under vendor‐managed inventory |
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| Authors: | Jianhu Cai Xiaoqing Hu Yi Han Haifang Cheng Weilai Huang |
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| Affiliation: | 1. College of Economics and Management, Zhejiang University of Technology, Hangzhou, P.R., China;2. School of Management, Huazhong University of Science and Technology, Wuhan, P.R., China |
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| 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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| Keywords: | supply chain management inventory theory option contract coordination vendor‐managed inventory |
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