Production Capacity Reserve and Supply Chain Coordination Based on Option Contract

Abstract

Under the e-commerce environment, the network direct selling mode is developing rapidly, which is an important way for enterprises to reduce logistics costs and storage risks and win survival and development. In this paper, the order and dual reserve decision model is constructed based on option contract under the direct selling mode. In order to reduce losses caused by uncertain demand, we investigate the manufacturer’s optimal purchase decisions of spot and option, as well as the supplier’s optimal physical reserve proportion decision for the option order in a two-stage supply chain. Besides, the role and application of production capacity reserve are further explored, and the coordination mechanism of supply chain is further studied. The results show that the method of combining production capacity reserve and physical reserve alleviates the inventory pressure from option order and increases the profits of the supplier, who keeps the total physical production unchanged under uncertain demand and alleviates uncertain risk by adjusting the reserve of production capacity. Besides, the coordination of the supply chain can be realized with a certain linear relationship between the exercise price and option price and within the appropriate flexibility range of the option price. Finally, the simulations and sensitivity analyses are conducted to support and expand the model. Our research provides theoretical insights and practical guiding significance for dealing with the uncertain demand and reducing the risks caused by option contract to the upstream in the setting of online direct selling mode, which overcomes the defects of the option contract and extends its application in practical application.

Keywords

• Production capacity reservation
• dual reservation mode
• supply coordination
• direct selling mode
• option contract