Supplier Commitment and Production Decisions Under a Forecast-Commitment Contract
2006; Institute for Operations Research and the Management Sciences; Volume: 52; Issue: 1 Linguagem: Inglês
10.1287/mnsc.1050.0471
ISSN1526-5501
AutoresElizabeth J. Durango‐Cohen, Candace Arai Yano,
Tópico(s)Scheduling and Optimization Algorithms
ResumoManufacturing firms in capital-intensive industries face inherent demand volatility for their products and the inability to change their capacity quickly. To cope with these challenges, manufacturers often enter into contracts with their customers that offer greater certainty of supply in return for more predictable orders. In this paper, we study a “forecast-commitment” contract in which the customer provides a forecast, the supplier makes a production commitment to the customer based on the forecast, and the customer’s minimum order quantity is a function of the forecast and committed quantities. We provide a complete analysis of the supplier’s decisions when there is a single customer facing uncertain demand. We first show that the supplier has two dominant commitment strategies: committing to the forecast or committing to the production quantity. We then characterize the jointly optimal commitment and production strategy for the supplier and extend the results to consider a capacity constraint. We show that the proposed contract can moderate the supplier’s motivation to underproduce, and due to the structure of the contract and the form of the supplier’s optimal strategy, also limits the customer’s incentive to overforecast. We also provide results for a capacitated two-customer example, which show that the supplier’s choice of production quantity for each customer is not necessarily nondecreasing in the total available capacity.
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