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

Xavier Brusset ()

Econometrics from EconWPA

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.

Keywords: contracts; supply chain; statistical decision theory; optimization techniques; transactional relationships (search for similar items in EconPapers)
JEL-codes: L14 L23 C44 C61 C62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-com and nep-mic
Date: 2005-12-07
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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