Bilateral Coordination Strategy of Supply Chain with Bidirectional Option Contracts under Inflation

Abstract EN

As far as the price increase and the demand contraction caused by inflation are concerned, we establish a Stackelberg game model that incorporates bidirectional option contracts and the effect of inflation and derive the optimal ordering and production policies on a one-period two-stage supply chain composed of one supplier and one retailer.

Through using the model of wholesale price contracts as the benchmark, we find that the introduction of bidirectional option contracts can benefit both the supplier and the retailer under inflation scenarios.

Based on the conclusions drawn above, we design the bilateral coordination mechanism from the different perspective of two members involved and discuss how bidirectional option contracts should be set to achieve channel coordination under inflation scenarios.

Through the sensitivity analysis, we illustrate the effect of inflation on the optimal decision variables and the optimal expected profits of the two parties with bidirectional option contracts.