##
**Selection of contract suppliers under price and demand uncertainty in a dynamic market.**
*(English)*
Zbl 1176.90444

Summary: We consider a supply contracting problem in which the buyer firm faces non-stationary stochastic price and demand. First, we derive analytical results to compare two pure strategies: (i) periodically purchasing from the spot market; and (ii) signing a long-term contract with a single supplier. The results from the pure strategies show that the selection of suppliers can be complicated by many parameters, and is particularly affected by price uncertainty. We then develop a stochastic dynamic programming model to incorporate mixed strategies, purchasing commitments and contract cancellations. Computational results show that increases in price (demand) uncertainty favor long-term (short-term) suppliers. By examining the two-way interactions of contract factors (price, demand, purchasing bounds, learning and technology effect, salvage values and contract cancellation), both intuitive and non-intuitive managerial insights in outsourcing strategies are derived.

PDFBibTeX
XMLCite

\textit{S. Li} et al., Eur. J. Oper. Res. 198, No. 3, 830--847 (2009; Zbl 1176.90444)

Full Text:
DOI

### References:

[1] | Anupindi, R.; Bassok, Y., Approximations for multiproduct contracts with stochastic demands and business volume discounts: Single supplier case, IIE Transactions, 30, 723-734 (1998) |

[2] | Anupindi, R.; Bassok, Y., Supply contracts with quantity commitments and stochastic demand, (Tayur, S.; Ganeshan, R.; Magazine, M., Quantitative Models for Supply Chain Management (1998), Kluwer Academic Publishers: Kluwer Academic Publishers Boston), 197-232 · Zbl 0964.90504 |

[3] | Bassok, Y.; Anupindi, R., Analysis of supply contracts with commitments and flexibility, IIE Transactions, 29, 373-381 (1997) |

[4] | Chambers, M. J.; Bailey, A., A theory of commodity price fluctuations, Journal of Political Economy, 104, 5, 924-957 (1996) |

[5] | Cohen, A. M.; Agrawal, N., An analytical comparison of long and short term contracts, IIE Transactions, 31, 783-796 (1999) |

[6] | Deaton, A.; Laroque, G., Competitive storage and commodity price dynamics, Journal of Political Economy, 104, 5, 896-923 (1996) |

[7] | Dixit, A. K.; Pindyck, R. S., Investment Under Uncertainty (1994), Princeton University Press: Princeton University Press Princeton, NJ |

[8] | Erhun, F., Keskinocak, P., Tayur, S., 2000. Spot markets for capacity and supply chain coordination. Working Paper, GSIA, Carnegie Mellon University, Pittsburgh.; Erhun, F., Keskinocak, P., Tayur, S., 2000. Spot markets for capacity and supply chain coordination. Working Paper, GSIA, Carnegie Mellon University, Pittsburgh. |

[9] | Huang, W.; Li, S.; Tirupati, D., Selection of suppliers considering the learning effect and technology improvement, International Journal of Information Technology and Decision Making, 2, 1, 71-92 (2003) |

[10] | Katz, P.; Sadrian, A.; Tendick, P., Telephone companies analyze price quotations with Bellcore’s PDSS software, Interfaces, 24, 1, 50-63 (1994) |

[11] | Magretta, J., The power of virtual integration: An interview with Dell Computer’s Michael Dell, Harvard Business Review, 72-84 (1998) |

[12] | Martínez-de-Albéniz, V.; Simchi-Levi, D., A portfolio approach to procurement contracts, Production and Operations Management, 14, 1, 90-114 (2005) |

[13] | McMillan, J., Organizing a Network of Subcontractors, (Games, Strategies and Managers (1992), Oxford University Press: Oxford University Press New York), Chapter 13 |

[14] | Minahan, T., 2007. Get Real: The Secrete to Supply Risk Management, SupplyExcellence. <http://supplyexcellence.com/blog/2007/06/22/get-real-the-secret-to-supply-risk-management/>; Minahan, T., 2007. Get Real: The Secrete to Supply Risk Management, SupplyExcellence. <http://supplyexcellence.com/blog/2007/06/22/get-real-the-secret-to-supply-risk-management/> |

[15] | Peleg, B.; Lee, H. L.; Hausman, W. H., Short-term E-procurement strategies versus long-term contracts, Production and Operations Management, 11, 4, 458-479 (2002) |

[16] | Quinn, J. B.; Hilmer, F. G., Strategic Outsourcing, Sloan Management Review, 43-55 (1994), Summer |

[17] | Routledge, B. R.; Seppi, D. J.; Spatt, C. S., Equilibrium forward curves for commodities, Journal of Finance, 55, 3, 1294-1388 (2000) |

[18] | Sadrian, A.; Yoon, Y. S., A procurement decisions support system in business volume discount environments, Operations Research, 42, 1, 14-23 (1994) |

[19] | Schrader, C., Speeding build and buy processes across a collaborative manufacturing network, Achieving Supply Chain Excellence Through Technology (ASCET), 3, 82-88 (2001) |

[20] | Seifert, R. W.; Thonemann, U. W.; Hausman, W. H., Optimal procurement strategies for online spot markets, European Journal of Operational Research, 152, 3, 781-799 (2004) · Zbl 1043.90519 |

[21] | Stewart, R.; Johannes, J. D.; Wyskida, R. M., Cost Estimator’s Reference Manual. Cost Estimator’s Reference Manual, Wiley Series in New Dimension in Engineering (1995), John Wiley & Sons Inc. |

[22] | Stoll, H. R.; Whaley, R. E., Futures and Options: Theory and Applications (1993), South-Western Publishing Co.: South-Western Publishing Co. Cincinnati, OH |

[23] | Tibben-Lembke, R. S., \(N\)-period contracts with ordering constraints and total minimum commitments: Optimal and heuristic solutions, European Journal of Operational Research, 156, 353-374 (2004) · Zbl 1056.90007 |

[24] | Tsay, A.; Nahmias, S.; Agrawal, N., Modeling supply chain contracts: A review, (Tayur, S.; Ganeshan, R.; Magazine, M., Quantitative Models for Supply Chain Management (1999), Kluwer Academic Publishers: Kluwer Academic Publishers Boston), 299-330 · Zbl 1052.90513 |

This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. In some cases that data have been complemented/enhanced by data from zbMATH Open. This attempts to reflect the references listed in the original paper as accurately as possible without claiming completeness or a perfect matching.