| Supply chain management aims to optimize the management of material, information, and financial flows in a network of suppliers and buyers to efficiently respond to market demands for goods and services. The advent of the internet facilitated many of the supply chain-related processes and increased the potential reach of trading communities (so called spot markets), where suppliers can sell off excess inventory and buyers can fill last minute procurement needs.; The focus of my research is on supply and procurement planning in general and on contracts between suppliers and buyers in the presence of such a spot market, in particular. Almost all business-to-business transactions are governed by contracts and as a consequence the academic literature on supply contracts is quite rich. In the recent past, supply contracts with options, which give the buyer the right to purchase a specified amount of a good or service without the obligation to do so, have gained more and more momentum in many industries. However, only a few academics have considered them and even fewer have allowed for spot markets as an additional procurement channel.; We extend the existing literature in that we jointly determine the optimal purchasing and inventory policies in an N-period time horizon for a buyer who has access to both supply contracts with options and a spot market for the procurement of components where the inventory serves as a buffer against demand and spot price uncertainty. Allowing for non-stationary demand and spot price distributions, which may be correlated with each other or from period to period, we derive the value of the quantity flexibility provided by the options contract. Our model comprises also a Stackelberg game between the supplier and the buyer, where the supplier acts as the leader and sets the pricing parameters of the supply contract in anticipation of the buyer's response. We generalize the results of the Stackelberg game to multiple buyers-multiple suppliers setting and determine the value of various types of supply contracts to the different parties as a function of the amount of information available to them at the time of their decision-making. |
