Research on Flexible Logistic Service Supply Chain Contracts with Options

This paper has developed an option model to quantify and price a flexible logistic service supply contract that considers both call and put options. It focuses on (a) deriving the optimal order decision of the integrator, in terms of both the committed order quantity and the number of option contracts; and (b) the optimal pricing decision of the provider in terms of both the option price and the exercise price. This paper has shown that a better alternative to the two parties' individual optimization is for them to negotiate a mechanism to share the profit increase over the no-flexibility contract, and that this profit sharing may achieve channel coordination.