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Financial and operational instruments for commodity procurement in quantity competition

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  • Arnold, Jan
  • Minner, Stefan

Abstract

We analyze a commodity procurement problem under uncertain future procurement prices and product demands. An optimization model is presented that finds the best mix of advance procurement, spot market procurement, and financial options to satisfy demand in an asymmetric and duopolistic sales market. One firm can only procure just-in-time whereas the other can additionally procure in advance via inventories or option contracts. We show that even under arbitrage-free procurement prices, inventories and option contracts both provide an advantage in comparison to pure just-in-time procurement. However, inventories turn out to dominate option contracts due to a stronger capacity commitment.

Suggested Citation

  • Arnold, Jan & Minner, Stefan, 2011. "Financial and operational instruments for commodity procurement in quantity competition," International Journal of Production Economics, Elsevier, vol. 131(1), pages 96-106, May.
    • Handle: RePEc:eee:proeco:v:131:y:2011:i:1:p:96-106
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    Cited by:

    1. Inderfurth, Karl & Kelle, Peter & Kleber, Rainer, 2013. "Dual sourcing using capacity reservation and spot market: Optimal procurement policy and heuristic parameter determination," European Journal of Operational Research, Elsevier, vol. 225(2), pages 298-309.
    2. Rainer Kleber & Karl Inderfurth & Peter Kelle, 2014. "Combined sourcing and inventory management using capacity reservation and spot market," FEMM Working Papers 140005, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    3. Hu, Ming-Che & Chen, Yu-Hui & Huang, Li-Chun, 2014. "A sustainable vegetable supply chain using plant factories in Taiwanese markets: A Nash–Cournot model," International Journal of Production Economics, Elsevier, vol. 152(C), pages 49-56.
    4. Karl Inderfurth & Peter Kelle & Rainer Kleber, 2011. "Dual Sourcing Using Capacity Reservation and Spot Market: Optimal Procurement Policy and Heuristic Parameter Determination," FEMM Working Papers 110014, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    5. Belleh Fontem & Megan Price, 2021. "Joint client selection and contract design for a risk-averse commodity broker in a two-echelon supply chain," Annals of Operations Research, Springer, vol. 307(1), pages 111-138, December.
    6. Jinpyo Lee, 2019. "Impact of Loss-Aversion on a Financially-Constrained Supply Chain," Sustainability, MDPI, vol. 11(9), pages 1-19, May.
    7. Jianjun Yu & Dan Zhu, 2018. "Study on the Selection Strategy of Supply Chain Financing Modes Based on the Retailer’s Trade Grade," Sustainability, MDPI, vol. 10(9), pages 1-12, August.

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