Design and Evaluation of Long-Term Supply Contracts in the Presence of Spot Market

Event Details
  • Date/Time:
    • Monday January 9, 2006 - Sunday January 8, 2006
      10:00 am - 11:00 pm
  • Location: Executive Classroom 228 - Main Bldg.
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Contact
Barbara Christopher
Industrial and Systems Engineering
Contact Barbara Christopher
404.385.3102
Summaries

Summary Sentence: Design and Evaluation of Long-Term Supply Contracts in the Presence of Spot Market

Full Summary: Design and Evaluation of Long-Term Supply Contracts in the Presence of Spot Market

We consider a make-to-stock (MTS) manufacturing system that
produces a single product that can be sold not only in a spot
market but also through a long-term supply contractual channel,
such as the OEM contract. A typical example of the spot market is
a B2B online commodity market. The price in the spot market is
random, and evolves as a continuous-time Markov chain. The demand
in the spot market comes in the arrivals of a Markov Modulated
Poisson Process (MMPP), and can be rejected or accepted by instant
or delayed fulfillment. However, price in the contractual channel
is pre-specified and demand in the contractual channel comes at a
homogeneous Poisson process with a committed constant arrival
rate. The system is obligate to fulfill contract orders. In this
setting, the coordination of production and spot sales arises to
be a core of decisions and is proven to be optimized by a simple
and intuitively structured threshold policy under a long-run
average profit criterion. In particular, the optimal policy
consists of spot-dependent base-stock and sale
admission thresholds. Then, we show how a contract should be
evaluated and designed while bargaining with the contractual
partner. Finally, we unveil that the manufacturer and the partner
can reach an economic Nash equilibrium point to strike a deal. An
effective algorithm is proposed for computing optimal threshold
control and Nash equilibrium point.

(joint work with: Zhan Pang)

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H. Milton Stewart School of Industrial and Systems Engineering (ISYE)

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Status
  • Created By: Barbara Christopher
  • Workflow Status: Published
  • Created On: Oct 8, 2010 - 7:36am
  • Last Updated: Oct 7, 2016 - 9:52pm