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Optimal procurement portfolios when using B2Bs: A model and analysis

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  • Ganeshan, Ram
  • Boone, Tonya
  • Aggarwal, Prabhu

Abstract

B2Bs are online markets where buyers and sellers trade products either in the spot market or via derivate instruments such as option contracts. Our goal in this paper is to show how procurement managers, in addition to buying on the spot market in cash (physical transactions), can integrate risk management tools (paper transactions) to mitigate risk over multiple time periods. Specifically, our scenario includes a buyer who is making procurement decisions to satisfy demand. Demand can be satisfied either by buying and exercising options on the B2B (for a price) or by directly trading on the spot market with an uncertain spot market price distribution. Over a two-period time horizon, we provide a model to compute the optimal number of options and physical quantities of the product that are needed to satisfy demand while minimizing relevant procurement and inventory costs over the two periods.

Suggested Citation

  • Ganeshan, Ram & Boone, Tonya & Aggarwal, Prabhu, 2009. "Optimal procurement portfolios when using B2Bs: A model and analysis," International Journal of Production Economics, Elsevier, vol. 118(1), pages 146-151, March.
    • Handle: RePEc:eee:proeco:v:118:y:2009:i:1:p:146-151
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    References listed on IDEAS

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    1. Aggarwal, Prabhu & Ganeshan, Ram, 2007. "Using risk-management tools on B2Bs: An exploratory investigation," International Journal of Production Economics, Elsevier, vol. 108(1-2), pages 2-7, July.
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    Cited by:

    1. Xu, Jinpeng & Feng, Gengzhong & Jiang, Wei & Wang, Shouyang, 2015. "Optimal procurement of long-term contracts in the presence of imperfect spot market," Omega, Elsevier, vol. 52(C), pages 42-52.
    2. Gülpınar, N. & Oliveira, F.S., 2012. "Robust trading in spot and forward oligopolistic markets," International Journal of Production Economics, Elsevier, vol. 138(1), pages 35-45.
    3. Gunasekaran, Angappa & McGaughey, Ronald E. & Ngai, Eric W.T. & Rai, Bharatendra K., 2009. "E-Procurement adoption in the Southcoast SMEs," International Journal of Production Economics, Elsevier, vol. 122(1), pages 161-175, November.
    4. Quirós Romero, Cipriano & Rodríguez Rodríguez, Diego, 2010. "E-commerce and efficiency at the firm level," International Journal of Production Economics, Elsevier, vol. 126(2), pages 299-305, August.

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    More about this item

    Keywords

    B2B Spot markets Options;

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