Quantity Flexibility Contracts: Optimal Decisions with Information Updates*

SURESH P. SETHI · Houmin Yan · Hanqin Zhang

110 citations0/0 files storedDecision Sciences

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Supply Chain and Inventory Management Sustainable Supply Chain Management Forecasting Techniques and Applications

Abstract

ABSTRACT We study single and multiperiod quantity flexibility contracts involving one demand forecast update in each period and a spot market. We obtain the optimal order quantity at the beginning of a period and order quantities on contract and from the spot market at the then prevailing price after the forecast revision and before the demand materialization. The amount that can be purchased on contract is bounded by a given flexibility limit. We discuss the impact of the forecast quality and the level of flexibility on the optimal decisions and managerial insights behind the results.

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References

1999The Quantity Flexibility Contract and Supplier-Customer Incentives 2002Coordination and Flexibility in Supply Contracts with Options 2000Efficient Supply Contracts for Fashion Goods with Forecast Updating and Two Production Modes 1999Quantity Flexibility Contracts and Supply Chain Performance 1994MODELING THE EVOLUTION OF DEMAND FORECASTS ITH APPLICATION TO SAFETY STOCK ANALYSIS IN PRODUCTION/DISTRIBUTION SYSTEMS 2001Integrating Replenishment Decisions with Advance Demand Information 1999Note: Optimal Ordering Decisions with Uncertain Cost and Demand Forecast Updating 1997Analysis of supply contracts with total minimum commitment

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