Supplier-Retailer Flexible Commitments Contracts : A Robust Optimization Approach

Abstract

We propose the use of robust optimization, a powerful tool that has already proven itself in several application areas, to the problem of finding optimal values for quantity exible commitment contracts between suppliers and retailers. We demonstrate the capabilities of the robust optimization methodology by solving model variations that could not be solved by other methods previously suggested in this area. In particular, we allow non-stationary demand and cost parameters and a more exible way to describe the possible deviations in commitments and orders. We apply our models first to finite-horizon problems and then extend it to a new type of rolling-horizon settings which we denote as "folding-horizons".

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