Improving the coordination in the humanitarian supply chain: exploring the role of options contract

Lijo John, Anand Gurumurthy, Arqum Mateen, Gopalakrishnan Narayanamurthy*

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

12 Citations (Scopus)

Abstract

The uncertainty associated with the location, severity and timing of disaster makes it difficult for the humanitarian organization (HO) to predict demand for the aid material and thereby making the relief material procurement even more challenging. This research explores whether options contract can be used as a mechanism to aid the HO in making procurement of relief material less challenging by addressing two main issues: inventory risk for buyers and over-production risk for suppliers. Furthermore, a contracting mechanism is designed to achieve coordination between the HO and aid material suppliers in the humanitarian supply chain through optimal pricing. The options contract is modelled as a stylized version of the newsvendor problem that allows the HO to adjust their order quantity after placing the initial order at the beginning of the planning horizon. This flexibility helps to mitigate the risk of both overstocking and understocking for the HO as well as the risk of overproduction for the supplier. Our results indicate that the optimal values for decision parameters are not “point estimates” but a range of prices, which can facilitate negotiation between the two parties for appropriate selection of contract parameters under an options contract. The results imply that options contract can aid in the decentralized approach of fixing the prices between the HO and the supplier, which in turn would help in achieving systemic coordination.

Original languageEnglish
Peer-reviewed scientific journalAnnals of Operations Research
Volume319
Issue number1
Pages (from-to)15-40
Number of pages26
ISSN0254-5330
DOIs
Publication statusPublished - 12.2022
MoE publication typeA1 Journal article - refereed

Keywords

  • 512 Business and Management
  • Coordination
  • Humanitarian supply chain
  • Newsvendor problem
  • Options contracts
  • Procurement

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