Two-stage flexible supply contract with payback and information update

In this paper, we consider a two-stage supply contract model for advanced reservation of capacity, with payback option at the beginning of the selling season. Between the two decision stages, external information is collected that serves to update the demand forecast and permits to adjust the decisions of the first stage by exercising options or by returning some units to the supplier. The demand occurs during a single selling period. At the end of the period, the remaining inventory, if any, is sold at a salvage value. During the selling season, any satisfied demand is charged with a unit selling price and any unsatisfied demand is lost. The objective of the model is to determine the quantities to be ordered before the beginning of the selling season which can be interpreted as the amount of capacity to be reserved, in order to satisfy optimally the demand. [Received 3 October 2008; Revised 30 May 2009; Accepted 1 December 2009]