A quantity flexibility contract model for a system with heterogeneous suppliers

Abstract

This paper focuses on a quantity flexibility contract through which two or more heterogeneous suppliers periodically deliver a single type of product to a buyer as promised in the contract. The buyer starts each period by informing each supplier of the order size for the period and the reservation quantity for all future periods within a planning horizon. The order size for the current period is finalized according to the amount previously reserved, although this amount can be increased or decreased by a predetermined percentage of the reservation amount. In this paper, a linear programming model including several key features of a quantity flexibility contract is developed from the buyer's perspective. A rolling-horizon implementation strategy is suggested for efficient implementation of the contract. Computational experiments demonstrate that the proposed method can be used to determine a cost effective solution for the buyer in a reasonable amount of time. (C) 2013 Elsevier Ltd. All rights reserved.