Abstract：This paper considers the moment of demand forecast updating as a decision variable in a twostage production and ordering mode, and introduces flexible option contracts to coordinate the supply chain. At the beginning of the first stage, the retailer buys some options according to the initial demand forecast. As soon as the second ordering time comes, the retailer adjusts the option quantities flexibly referring to updated demand forecast, which is based on the market information collected in the first stage. The retailer exercises some options as soon as possible when the sales season comes, and gets products reserved to satisfy the market demand. The option contract includes three parameters, which are riskpooling coefficient, option price and exercise price. The riskpooling coefficient is the ratio of the option price and the cost of production reservation, and the exercise price is a linear combination of the retail price, unit shortage cost, and unit salvage value. The option contract can coordinate the supply chain, and the system profit can be allocated arbitrarily between the two members. Given an efficient riskpooling coefficient, the profits of the system and its two members can get Pareto improvements. The allocation of extra system profit closely depends on the magnitude of the member’s risk aversion and its corresponding negotiation power.
2013, Vol. 10 
