Optimal Purchasing Decisions with Supplier Default in Portfolio Procurement

Xiaoqing Liu (), Gongli Luo and Xinsheng Xu
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Xiaoqing Liu: College of Economics and Management, Qingdao University of Science and Technology, Qingdao 266061, China
Gongli Luo: College of Economics and Management, Qingdao University of Science and Technology, Qingdao 266061, China
Xinsheng Xu: College of Science, Binzhou University, Binzhou 256601, China

Mathematics, 2022, vol. 10, issue 17, 1-10

Abstract: As global public health events and regional conflicts have greater influence on supply chains nowadays, supplier default in procurement becomes more and more common in practice. However, there is less research on portfolio procurement purchasing decisions in the case of fixed-term contract supplier default. This paper focuses on the optimal purchasing decision of buyers by using a combination of fixed-term contracts and spot transactions, which is a beneficial extension of the classical newsvendor model. When supplier default is not considered, the optimal purchase quantity in the fixed-term contract is first obtained, which maximizes the buyer’s expected profits. Research shows that supplier default has an important impact on the optimal purchasing decision making in portfolio procurement. The optimal purchase quantity of the buyer in the fixed-term contract decreases with the increase in the default rate of the contract supplier, which implies that the default from the contract supplier inhibits a larger purchase quantity in the fixed-term contract. In addition, it is proved that the buyer’s expected profits from portfolio procurement increases with the decrease in the contract supplier’s default rate. Finally, numerical experiments and sensitivity analysis are conducted to prove the result, and some management opinions on the optimal decision-making in portfolio procurement with fixed-term contracts and spot transactions are put forward.

Keywords: portfolio procurement; supplier default; purchasing decision (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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