Supply chain management has attracted managers and researchers attention during last two decades. Since uncoordinated decisions of economically independent units of supply chain can lead to deviation of system optimal performance, the supply chain coordination is emerged as one of the most important and appealing subjects. In the related literature contract design mechanisms are introduced as appropriate techniques for coordination. In this research coordination of supplier-manufacturer through option contract is studied. Unlike the previous researches, in this research it is shown that how a manufacturer who tries to attain to customer oriented production systems, has to design supply contract with his major component supplier. The studied problem is applicable for products in different industries, especially for innovative products. Also, since demand is naturally indeterminist and in order to consider more realistic situations in the problem, stochastic demand for manufacturer's leftover products at the end of selling season is considered in the analysis. In this research, necessary conditions for system coordination and optimal order and production decisions of supplier and manufacturer are obtained. Analytical results represent that using the option contract, not only system expected profit improves, but also the supplier motivates for overproduction and capacity reservation. It is established that both manufacturer and supplier can achieve to win-win situation. Also, it is possible to attain to ideal customer oriented production, in which the manufacturer will process the products according to customer opinion and without holding any inventory, in especial situation.
