COMPETENCIAS TECNOLÓGICAS

Since the fruit supply chains are affected by supply uncertainty more than demand uncertainty, design an option contract from the supplier’s perspective could decrease the impact of supply uncertainty.

How- The supplier offers the option contract to the supermarket. He buys the right of selling fruits to the supermarket with an allowance to increase or decrease (call or put) the quantity. In a season with oversupply the supplier is in favour to exercise the contract in call situation and sell Q+q fruits.

Advantage- It is compatible with the real conditions which the grower has the flexibility in increasing the order when oversupply observes in the supply chain.

Disadvantage- The supermarket is not willing to enter to such contract with each supplier as it adds the uncertainty of available fruit- each supplier must decide whether to exercise

Option contracts for supermarket fruit supply chains

156

Quality standards in the contract

Regardless of how the contract is modelled, quality standards must be added in contract terms. Furthermore, the cost of quality must be calculated in the cost functions in order to find the optimum contract parameters.

Option contracts designed for the whole market

Losing competitive advantage in the market was one of the main reasons that interviewees count why an agreement with fixed price is not suitable for the supply chain. If option contracts are applied among other retail chains then all players apply fixed price agreements and trade in the same line. The competition between the retailers is then with respect to who pays higher premiums, purchases more quantities, and applies higher fixed prices.

7.7 Chapter summary

This chapter focused on challenging the assumptions on which theoretical studies have been based; identifying the required modifications; and on exploring the new parameters that need to be included in developing option contracts for perishable food supply chains. There are three theoretical assumptions on which option contracts studies are based. The first is that the chain is a retailer-led supply chain; the second is that demand uncertainty is a critical characteristic of the chain; and the third is that particular contractual terms including issues related to a fixed amount, a fixed time, a fixed price and premiums are necessary and important.

First, the assumption of being retailer-led supply chain in the upstream part of the fruit chains is argued. The marketers and direct growers are as powerful as the Supermarket. They influence order quantities and prices. They tend to receive revenue above average in the relationship. Sharing power between the suppliers and supermarket is the result of the perishability factor in produce. The Supermarket at the end of the supply chain has to share the power with the suppliers in order to be able to respond to the consumers’ expectations, which is fresh quality fruit.

Chapter Seven

Second, demand fluctuates during each season and adds uncertainty into the decision making. Competition between fruits, promotions, cross advertising, reality shows and prices are counted as the reasons of demand fluctuations. However, fruit prices are supply driven rather than demand driven. This highlights the role of supply uncertainty in the supply chain.

Third, the option contracts are based on a fixed amount, fixed time, and fixed prices. However, the quality of fruits, available volumes, beginning time of the season, season duration, and prices are unpredictable parameters before the season starts. The high level of uncertainty in supply challenges the idea of applying fixed terms in option contracts in perishable food supply chains. Therefore, option contracts can only be applied in the perishable food chains, if the contract terms and definitions focus on the supply uncertainty rather than demand.

There are more parameters identified in this research that must be considered in developing option contracts in supermarket fruit supply chains. Salvage value and quality costs are the parameters included in current form of option contracts that need to be adjusted and reconsidered according to the requirements of real world fruit chains.

The research also unveiled the importance of long term relationships in these chains. Option contracts may increase profit in the supply chain in a short time horizon- for example the profit in the current season. However, the supermarket and suppliers apply long-term agreements as much as eight years. Therefore, the option contract could only be effective in the fruit supply chain if the long-term relationship and its consequences are considered in the contract development.

Potential developments were recommended in this chapter for option contracts in order to make them more compatible to the fruit supermarket chains. The recommendations include: option contracts in weekly timeframe, option contracts in seasonal time frame, option contracts for the supplier, quality standards in the contract, options contract to be traded in

Option contracts for supermarket fruit supply chains

158

The next chapter outlines the findings and conclusions according to the research objectives. Research limitations and avenues for future studies are also suggested in the next chapter.