Flexible Operation Model in Chinese Rural Agricultural Supply Chains with Cold Storages

Abstract

This paper provides a flexible supply contract with put options (SCPO) for Chinese rural agricultural supply chains with cold storages. With the digital trading platform, the buyer may be far away from the grower. At the beginning of the planning horizon, the buyer places an initia l order and purchases put options to obtain the flexibility to adjust the initial order downward. With the consideration of the buyer's order and the random yield, the grower determines the planting quantity. During the planting season, the buyer updates t he demand forecast. At the beginning of the selling season, with updated demand information, the buyer exercises put options if necessary. Then, the grower delivers the final order and stores the remainder in the cold storage to extend its shelf life, which incurs extra storage costs that can be recovered by salvaging at higher price later. We formulate the buyer's and the grower's profit functions, and derive the optimal policies for them. In the numerical analysis, we find that SCPO benefits both the grower and the buyer. The preservation level of cold storage enhances the grower reliability and the enthusiasm for planting.