Modeling and Assessing the Quantity Flexibility Contracts for Seasonal Products with High Demand Volatility

A noticeable and practicable scheme of channel coordination is the quantity flexibility contracts. It can be emphasized that quantity flexibility contracts can share the risk and cost of market demand uncertainty and yield more potential profitability for members within a supply chain. In view of its increasing importance, quantity flexibility contracts have been studied extensively and various flexibility provisions have been developed for particular application circumstances in recent years. Fisher and Raman (1996) analyzed how quantity flexibility promises made by retailers during two periods influence supplier production operations. Tsay (1999) argued that the quantity flexibility contact enables manufacturer and retailer to share the cost of market demand uncertainty. Tsay and Lovejoy (1999) then extended the model to more complex settings with multiple echelons, multiple periods and demand forecast updates and applied rolling-horizon planning.