Flexible Contract in Perishable Products Supply Chain with Independent Option

This paper brings option trading into perishable products supply chain, with high demand uncertainties, long production lead-times and short selling period, and explores the application of independent option in flexible contract. Based on these, it develops a two-stage contract with independent option for a single manufacturer and two retailers, analyzes the decision process of retailer and obtains the retailer´s optimal order policy. Then it compares the contract model with nested-option contract, and finds out that independent option can increase retailer´s profit through option trading and the retailer will increase the quantity of options purchased while reduce the quantity of initial order. The unit price of traded option influences the retailer´s optimal order policy. With the increase of retailer´s profit and flexibility, the supply chain´s default and moral risk also increase.