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Emergency material reserve problem with option contract considering low carbon disposal cost

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Abstract

In this paper, we study option contracts for emergency material reserves due to unexpected events. Contingencies occur randomly and the amount of realization cannot be known until it breaks out. Therefore, it is important to stockpile some necessary supplies in advance. However, a large advance stockpile on the demand side would incur low-carbon disposal costs, which are not economical. Also, the supplier will have no incentive to stockpile for the demander due to low carbon disposal costs and production costs. Therefore, we propose a contractual approach with option to stimulate supplier to stockpile for his client. Three models are discussed based on the consideration of low-carbon disposal costs: a centralized decision case, a non-option decentralized case, and a decentralized case with option. The outcomes demonstrate that the number of first orders under the decentralized case without option is less than the order quantity under the centralized case. Moreover, the size of the first purchase volume in all three cases depends on the both parties’ practical factors. Meanwhile, the reasonable interval of option fee is obtained by analysis.

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Funding

This work was supported by Philosophy and Social Science Foundation of Tianjin (No. TJGL16-009Q).

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Authors and Affiliations

  1. College of Economics and Management, Tianjin University of Science and Technology, Tianjin, 300222, China

    Guoli Wang, Jingyi Wang, Jiawei Pang & Junyan Wang

  2. State Grid Jibei Electric Power CO. LTD. Material Branch, Beijing, 100075, China

    Jingyi Wang

  3. Beijing BoWang China Science and Technology CO. LTD Engineering Consulting Branch, Beijing, 100070, China

    Wei Wang

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  1. Guoli Wang
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  2. Jingyi Wang
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  3. Jiawei Pang
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  4. Wei Wang
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Correspondence to Guoli Wang.

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Wang, G., Wang, J., Pang, J. et al. Emergency material reserve problem with option contract considering low carbon disposal cost. Evol. Intel. 17, 361–369 (2024). https://doi.org/10.1007/s12065-023-00867-7

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  • DOI: https://doi.org/10.1007/s12065-023-00867-7

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