The structure of the optimal combined sourcing policy using capacity reservation and spot market with price uncertainty

This contribution focuses on the cost-effective management of the combined use of two procurement options: the short-term option is given by a spot-market with random price, whereas the long-term alternative is characterized by a multi period capacity reservation contract with fixed purchase price, reservation level and capacity reservation cost. Considering a multiperiod problem with stochastic demand, the structure of the optimal combined purchasing policy is derived using stochastic dynamic programming.Capacity reservation, spot market, purchasing policy, supply contracts, stochastic inventory control

Capacity Reservation under Spot Market Price Uncertainty

The traditional way of procurement, using long-term contract and capacity reservation, is competing with the escalating global spot market. Considering the variability of the spot prices, the flexibility of combined sourcing can be used to benefit from occasional low short-term spot price levels while the long-term contract is a means to hedge the risk of high spot market price incidents. This contribution focuses on the cost-effective management of the combined use of the above two procurement options. The structure of the optimal combined purchasing policy is complex. In this paper we consider the capacity reservation - base stock policy to provide a simple implementation and comparison to single sourcing options. Our analysis shows that in case of large spot market price variability the combined sourcing is superior over spot market sourcing even in case of low average spot market price and also superior over long-term sourcing even in case of high average spot market price.Capacity reservation; spot market; purchasing policy; supply chain contracts; stochastic inventory control

The structure of the optimal combined sourcing policy using capacity reservation and spot market with price uncertainty

This contribution focuses on the cost-effective management of the combined use of two procurement options: the short-term option is given by a spot-market with random price, whereas the long-term alternative is characterized by a multi period capacity reservation contract with fixed purchase price, reservation level and capacity reservation cost. Considering a multiperiod problem with stochastic demand, the structure of the optimal combined purchasing policy is derived using stochastic dynamic programming

Analysis of the Dynamical Behavior of Firms in a Three Layered Modular Assembly Model

This paper formulate an option model considers supplier's reaction as the profit sharing in module production, and analyses it by the agent theory. A dynamic environment in the model of the system of the production of modules of three layers is assumed, and the maker and the supplier are modeled by the technique of Genetic Programming (GP) as an agent who takes the action of selfoptimization. As result, the condition that the agent can exist continuously in the market is requested. In conclusion, violent competition and the selection of the similar agent are found even in the model of the option to consider the profit sharing and the reaction

Comparison between minimum purchase, quantity flexibility contracts and spot procurement in a supply chain

When, in a supply chain, a supplier and a buyer have the choice of transaction form to do business, the equilibrium transaction form which emerges is much more constrained than previously envisaged in literature. In this paper, two forms of long-term supply contracts and procurement in the spot market are compared. A capacity constrained service provider and a buyer of such service choose among three different transaction forms: spot procurement, minimum purchase commitment and quantity flexibility contracts. The ultimate demand the buyer has to satisfy and the spot market price of the input she has to purchase from the supplier are exogenous stochastic processes. Complete analytical results and a numerical example are presented. This paper builds upon recent supply chain contract literature by trying to join in one setting problems which up till now were considered in isolation.contracts, supply chain, statistical decision theory, optimization techniques, transactional relationships

Capacity Reservation under Spot Market Price Uncertainty

The traditional way of procurement, using long-term contract and capacity reservation, is competing with the escalating global spot market. Considering the variability of the spot prices, the flexibility of combined sourcing can be used to benefit from occasional low short-term spot price levels while the long-term contract is a means to hedge the risk of high spot market price incidents. This contribution focuses on the cost-effective management of the combined use of the above two procurement options. The structure of the optimal combined purchasing policy is complex. In this paper we consider the capacity reservation - base stock policy to provide a simple implementation and comparison to single sourcing options. Our analysis shows that in case of large spot market price variability the combined sourcing is superior over spot market sourcing even in case of low average spot market price and also superior over long-term sourcing even in case of high average spot market price

Choosing a transport contract over multiple periods

We offer a shipper and a carrier the choice among three contracts in which to frame their relationship. Both can also take recourse in the transport spot market. Demand and price on the spot market are dependent exogenous stochastic processes. We model the outcome of this endogenous choice of contract. The results, given in closed form, are different from those presented in the literature. Using numeric instances, we show how a choice is made and which contract would be preferred. Comparison on the variance of the economic returns are offered. The conclusions are applicable when the carrier is not capacity constrained.

Dual Sourcing Using Capacity Reservation and Spot Market: Optimal Procurement Policy and Heuristic Parameter Determination

This contribution focuses on the cost-effective management of the combined use of two procurement options: the short-term option is given by a spot market with random price, whereas the long-term alternative is characterized by a multi period capacity reservation contract with fixed purchase price and reservation level. A reservation cost, proportional with the reservation level, has to be paid for the option of receiving any amount per period up to the reservation level. A long-term decision has to be made regarding the reserved capacity level, and then it has to be decided - period by period - which quantities to procure from the two sources. Considering the multi-period problem with stochastic demand and spot price, the structure of the optimal combined purchasing policy is derived using stochastic dynamic programming. Furthermore, a simple heuristic procedure is developed to determine the respective policy parameters. Finally, we present a comprehensive numerical study showing that our heuristic policy performs very well

How information influences the cost of transport in a supply chain, a monte carlo simulation

The present paper studies the impact of information sharing and contractual instruments on a shipper and her transport suppliers through a monte carlo simulation. After reviewing the literature, we propose a model to measure the benefits in terms of expected transport cost and variance of this cost. We evaluate three scenarios over a reiterated- single period setting in a shipper carrier single-echelon model with a mix of long-term and short-term procurement strategies: perfect information, asymmetric information and private information at one level of the supply chain. After spelling out the optimal parameters for the procurement policy, we evaluate the rent transfer between carrier and shipper in a numeric example using the monte-carlo method.supply chain management, transport, contract, monte carlo, bivariate normal distribution, information

Supply chain risk management – II: A review of operational, financial and integrated approaches

This article is a sequel to Bandaly et al. (2011). Structured around the supply chain risk management (SCRM) typology and framework presented in the aforementioned article, this article provides a review on individual operational and financial risk management approaches reported in the literature. Avoidance, prevention and mitigation approaches reported are also summarized in tabular format for the four risk domains covered (internal operations, external stakeholders, marketplace and environment). Distinctions between operational and financial approaches are highlighted. A review of studies integrating both approaches is then presented. Areas for future research in SCRM are argued