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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)

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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://129.3.20.41/eps/em/papers/0512/0512007.pdf
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Publisher 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://129.3.20.41

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

Find related papers by JEL classification:
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Statistical Decision Theory; Operations Research
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium

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References listed on IDEAS
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  1. 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. [Downloadable!] (restricted)
  2. 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. [Downloadable!] (restricted)
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