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

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Author Info

  • Xavier Brusset

    (IAG, Université Catholique de Louvain, Louvain la Neuve, Belgium)

Abstract

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.

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File URL: http://128.118.178.162/eps/em/papers/0512/0512007.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Econometrics with number 0512007.

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Length: 31 pages
Date of creation: 07 Dec 2005
Date of revision:
Handle: RePEc:wpa:wuwpem:0512007

Note: Type of Document - pdf; pages: 31. How to choose a form of contract under bivariate demand and input price in a one-echelon capacitated supply chain. Any bivariate distribution can be applied. Three forms of transactional forms are studied.
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Web page: http://128.118.178.162

Related research

Keywords: contracts; supply chain; statistical decision theory; optimization techniques; transactional relationships;

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References

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  1. Andy A. Tsay, 1999. "The Quantity Flexibility Contract and Supplier-Customer Incentives," Management Science, INFORMS, vol. 45(10), pages 1339-1358, October.
  2. Wu, D. J. & Kleindorfer, P. R. & Zhang, Jin E., 2002. "Optimal bidding and contracting strategies for capital-intensive goods," European Journal of Operational Research, Elsevier, vol. 137(3), pages 657-676, March.
  3. Gérard P. Cachon & Martin A. Lariviere, 2001. "Contracting to Assure Supply: How to Share Demand Forecasts in a Supply Chain," Management Science, INFORMS, vol. 47(5), pages 629-646, May.
  4. Seifert, Ralf W. & Thonemann, Ulrich W. & Hausman, Warren H., 2004. "Optimal procurement strategies for online spot markets," European Journal of Operational Research, Elsevier, vol. 152(3), pages 781-799, February.
  5. A. A. Tsay & W. S. Lovejoy, 1999. "Quantity Flexibility Contracts and Supply Chain Performance," Manufacturing & Service Operations Management, INFORMS, vol. 1(2), pages 89-111.
  6. Paul R. Kleindorfer & D. J. Wu, 2003. "Integrating Long- and Short-Term Contracting via Business-to-Business Exchanges for Capital-Intensive Industries," Management Science, INFORMS, vol. 49(11), pages 1597-1615, November.
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Cited by:
  1. Ueckermann, E.M. & Blignaut, J.N. & Gupta, Rangan & Raubenheimer, J., 2008. "Modelling South African grain farmers’ preferences to adopt derivative contracts using discrete choice models," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 47(2), June.

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