Option Contracts In A Supply Chain Under Random Yield And Stochastic Demand

Over the years,the Chinese government has attached great importance to three rural issues.The government promulgated a series of policies for boosting agriculture,benefiting farmers,and raising rural prosperity to increase agricultural benefit and rural incomes.However,it increases the difficulty on agricultural supply chain management and makes it difficult to match supply and demand,due to long lead-times,short selling seasons,high yield and demand uncertainties of a part of agricultural products.To solve the problem,some solutions such as "order-based agriculture " and "fostering new types of agricultural business entities" had been appeared.However,these solutions may lead to the agricultural supply chain operation with higher risk,due to lack of the flexibility.Supply contracts with options consisting of a growing enterprise and a business enterprise in agricultural supply chain under random yield and stochastic demand are studied.The business enterprise is divided into two types: a business enterprise with replenishment and without replenishment.For two types of agricultural supply chains,supply contracts with options models are built to analysis supply chain members’ optimal production and procurement strategies.In numerical studies,the effects of different parameters on the supply members’ decision-making are illustrated.Conclusions are as follows.Whether the business enterprise is allowed to replenish or not,the supply contract with options can increase the order quantity.It is more effective than the order-based agriculture contract to deal with random yield,demand and spot market price,and more profitable in agricultural supply chain.Furthermore,compared with two supply contracts with options,both the business enterprise’s and the supply chain’s expected profit are greater,while the growing enterprise’s expected profit is only greater when the demand forecast update can obviously reduce the demand forecast variance under the supply contract with options where the business enterprise can replenish.