Abstract—A three-level pull supply chain composed by amanufacturer, a distributor and a retailer is considered to making use of thesupply chain management coordination mechanism with options contract. Twomodels are proposed respectively. One is a supply management mechanism withoutapplying options contract. The other is that with applying options contract. Tothe two models, corresponding analysisand calculation example are given.  Theconclusion is presentedthat theexpected total profitwithoptions is more than the other. 

Keywords-options; supplychainmanagement;three-level pull supply chain 

1. Introduction 

Options which is a derivation financialinstrument has been proved it can coordinate effectively the multiple interestowners in the supply chain^[1]. Ordering production capacity inadvance is the common form of optionscontracts. That is the seller orders production capacity in advance and paysoptions cost before the supplier invests and produces. When it is time, theseller has the right to purchase the products no more than the quantity ofoptions in options executive price^[2].Now there are many scholarswho introduce the options contract into the supply chain coordination problem.Ma Shihua. (2004) first introduced the options in the supply chain and asupplier’s capacity ordering model has been established based on the options^[3]. Guo Qiong(2005) proved that the profits of the supply chain membersusing the options contract is better than that of the newsboy model^[4].An Yong(2008) studied a options contract model of benefit sharing with a singlesupplier and a single seller. It showed that could improve the profits of theboth at the same time by making the appropriate options price and the sharingproportion^[5]. Cui Ai ping(2009) proposed the options contractcoordination mechanism to study the problems of ordering the logisticscapability and investment decision-making for integrators and subcontractorbased on the stackelberg master-slave game model. The conclusion was theoptions contract could bring out the logistics services supply chaincoordinating perfectly, and the expected profits of the both could be improved^[6]. The supply chains above were all two-level. However, a three-levelsupply chain is just the most typical, which is the epitome of the complexsupply chain.