A Mathematical Model for a Quantity-Flexible Contract

Abstract

This study focuses on a purchase contract through which a supplier periodically provides a product to a buyer. The buyer starts by informing the supplier of the purchase amount for the period and the reservation quantity for all future periods. The purchase amount 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. For this type of quantity-flexible contract, this study investigates an efficient control policy and a practical implementation tactic. We develop a mathematical model based on the buyer’s perspective and propose a rolling-horizon implementation strategy.