Optimal procurement portfolios when using B2Bs: A model and analysis

Ram Ganeshan, Tonya Boone and Prabhu Aggarwal

International Journal of Production Economics, 2009, vol. 118, issue 1, 146-151

Abstract: B2Bs are online markets where buyers and sellers trade products either in the spot market or via derivate instruments such as option contracts. Our goal in this paper is to show how procurement managers, in addition to buying on the spot market in cash (physical transactions), can integrate risk management tools (paper transactions) to mitigate risk over multiple time periods. Specifically, our scenario includes a buyer who is making procurement decisions to satisfy demand. Demand can be satisfied either by buying and exercising options on the B2B (for a price) or by directly trading on the spot market with an uncertain spot market price distribution. Over a two-period time horizon, we provide a model to compute the optimal number of options and physical quantities of the product that are needed to satisfy demand while minimizing relevant procurement and inventory costs over the two periods.

Keywords: B2B; Spot; markets; Options (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:118:y:2009:i:1:p:146-151

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