LAUSR

This paper studies a fresh produce supply chain that consists of a supplier and a retailer in a newsvendor framework. The supplier is the Stackelberg leader and the retailer is the follower. The retailer can obtain products from the supplier by wholesale price and call option portfolio contracts. The fresh produce incurs a circulation loss in quantity during its transportation. The retailer’s optimal ordering policy and the supplier’s optimal pricing policy are derived in the presence of portfolio contracts and circulation loss. It is demonstrated that, as the prices of option increase toward their optimal, the supplier’s expected profit increases whereas the retailer’s expected profit decreases, and the retailer is more sensitive to the price change. It is also found that the fresh produce supply chain can be coordinated by the portfolio contracts, and Pareto improvement for both chain members can also be achieved as compared with the non-coordinated contracts. However, when the supply chain is coordinated, the supplier cannot realize its optimal pricing strategy. Finally, it is shown that the supplier’s optimal option pricing policy is independent to the demand risk and wholesale price, and the circulation loss of fresh produce increases the management risks of the fresh produce supply chain.