Under rapidly changing and highly competitive market, manufacturers should develop new products or services with creative and innovative features and pay attention to customer oriented production. Along considering this issue, in this research we have studied how a manufacturer who is trying to achieve customer oriented production systems, should design supply contract with his major supplier. A coordinating contract based on option mechanism with two parameters, option price and exercise price, is used as supply contract. Since demand is not naturally deterministic, it is assumed that manufacturer's leftover products at the end of selling season will be sold stochastically. In this environment, necessary conditions for coordination and both parties' optimal decisions are obtained. The analysis shows that the manufacturer's optimal decisions can be the way that satisfies coordination necessary conditions. Also the manufacturer and the supplier both can achieve win-win situations and improve their expected profits in comparison with their expected profits before applying the option contract. A numerical example is conducted to illustrate the analysis. It is believed that the outcome of this research will work for different products especially for innovative products.
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