| This dissertation studies the use of procurement contracts under a variety of supply chain settings. The three main chapters cover risk-sharing contracts that coordinate the supply chain, the use of spot markets under quantity commitment contracts, and long-term vs. short-term contracts under capacity constraints.; In the first main chapter, we define a risk-sharing procurement contract whereby the manufacturer can limit the supplier's inventory risk in the form of a threshold below which the manufacturer covers the excess inventory costs himself. The contract is compared with four traditional procurement contracts and benchmarked against a vertically integrated system that maximizes total system profit. We show that risk sharing can achieve channel coordination and an arbitrary split of profits. The risk-sharing contract is easier to implement than an equivalent buyback contract, which is also shown to coordinate the supply chain.; The second main chapter analyzes the use of quantity commitment contracts where the manufacturer commits to purchasing a pre-determined number of units from the supplier over a multi-period horizon, and faces a unit penalty cost for under-ordering. In a two-period setting, we investigate the use of quantity commitment contracts in the presence of spot markets, and try to determine the conditions under which buying from the spot market, in the existence of long term contracts, may be profitable for the company.; The final main chapter studies the effect of “diseconomies of scale” arising from capacity constraints on procurement decisions when there is an alternative spot market. Three supply contracts are constructed to analyze the effects of linear and convex purchasing costs in a two-period setting with the existence of a spot market. We try to determine when each contract type is preferable, when the opportunity of a spot market adds more value, and how the results differ for linear vs. convex total purchasing costs. |
