Supply Chain partnership management with option contracts

Supply chain (SC) integration can be pursued by adopting centralized or decentralized decision-making approach. The former occurs when there is a unique decision maker in the SC, the latter occurs when several independent actors make decision at the different SC stages. SC contracts are useful tools to make the several SC actors under situation of a decentralized decision-making behave coherently among each other, as if the chain is operated in a centralized fashion. First of all, the paper analysis the SC model with buy-buck contracts; then furtherly propose and research the SC model based on the option contracts; finally carry on the numerical calculus. Compared with the buy-buck contracts, the result of the numerical calculus indicate that the option contracts can distinctively improve the flexibility, increase the overall profits of the SC and coordinate the relationship between the SC members.