Three-Echelon Fresh Product Supply Chain Coordination under Supply and Demand Uncertainty: A Hybrid Option–Revenue-Sharing Contract with Partial Backordering

Khodayari, Alireza; Golmohammadi, Amir-Mohammad

doi:10.22059/aie.2026.418448.1992

Three-Echelon Fresh Product Supply Chain Coordination under Supply and Demand Uncertainty: A Hybrid Option–Revenue-Sharing Contract with Partial Backordering

Articles in Press

Authors

Alireza Khodayari ¹

Amir-Mohammad Golmohammadi ²

¹ Department of Industrial Engineering, Faculty of Industrial Engineering, Iran University of Science and Technology, Tehran, Iran.

² Department of Industrial Engineering, Arak University, Arak, Iran

10.22059/aie.2026.418448.1992

Abstract

In fresh product supply chains, supply and demand uncertainties can cause product shortages or surpluses, adversely affecting supply chain performance. To address these risks and align the interests of supply chain members, this study proposes a coordination framework combining an option contract and a revenue-sharing contract for a three-echelon supply chain of perishable products. The model incorporates partial backordering to utilize excess production capacity arising from supply uncertainty. Decentralized and centralized models are developed as benchmarks, followed by formulation of the proposed hybrid contract. Analytical results demonstrate that the proposed contract achieves full supply chain coordination. In a numerical example, the contract increases the profits of the retailer, manufacturer, and supplier by 18.84%, 7.00%, and 15.89%, respectively, and the total supply chain profit by 12.82% compared with the decentralized setting. The results further show that option contracts mitigate the effects of supply and demand uncertainties while separating operational decisions from financial benefit allocation. Sensitivity analysis further shows that lower levels of demand and supply uncertainty can improve the profitability of all supply chain members.

Keywords

Fresh Product Supply Chain

Option Contract

Random Yield. Revenue-Sharing Contract

Supply Chain Coordination

Subjects