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Quantitative analysis of multi-periodic supply chain contracts with options via stochastic programming

  • VAN DELFT, Christian
  • VIAL, Jean-Philippe

    (University of Geneva)

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    We propose a stochastic programming approach for quantitative analysis of supply contracts, involving flexibility, between a buyer and a supplier, in a supply chain framework. Specifically, we consider the case of multi-periodic contracts in the face of correlated demands. To design such contracts, one has to estimate the savings or costs induced for both parties, as well as the optimal orders and commitments. We show how to model the stochastic process of the demand and the decision problem for both parties using the algebraic modeling language AMPL. The resulting linear programs are solved with a commercial linear programming solver; we compute the economic performance of these contracts, giving evidence that this methodology allows to gain insight into realistic problems.

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    Paper provided by HEC Paris in its series Les Cahiers de Recherche with number 733.

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    Length: 31 pages
    Date of creation: 01 Sep 2001
    Date of revision:
    Handle: RePEc:ebg:heccah:0733
    Contact details of provider: Postal: HEC Paris, 78351 Jouy-en-Josas cedex, France
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    1. Andrew J. Clark & Herbert Scarf, 2004. "Optimal Policies for a Multi-Echelon Inventory Problem," Management Science, INFORMS, vol. 50(12_supple), pages 1782-1790, December.
    2. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
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