Procurement Management Under Uncertain Demand And Spot Price

As the development of science and technology, widely application of internet, economic globalization in the 21st century, procurement trade is globalizing grad-ually. Procurement management function focuses on from procurement based on transactions to whole supply chains oriented by process. The process itself does not produce products or make commodity and service transactions, but search available sources from the whole worth by strong electronic commerce. Therefore electronic procurement based on B2B is new favorite of more procurement man-agers. Both external environment surround buyers and operation policies result in risks on procurement, such as price fluctuation in spot markets, delay of supplies, inventory surplus or lack caused by uncertainty of demand requirement. Based on the thought of combinatorial procurement contracts, in case of uncertainty of demand requirement and spot market price, how do buyers decide combinatorial procurement contracts, avoid risks, satisfy demand requirement and save the costs by exploiting such risk management tools relative to spot markets and electronic markets as forward contracts and long-term contracts. In this article we study forward contracts and long-term contracts by three models.In the first model, we study a procurement management model with param-eter of transportation costs based on the model proposed by Prabhu Aggarwal [1]. Firstly we prove that there exists a unique minimal value in the cost function in case of the distributions of spot market price and demand requirement being uniform. Then we give some numerical experiments to show good effective of the model. Finally we study the model in the other case of different distributions of spot market price and demand requirement. By contrasting models among dif-ferent distributions, we acquire the following results:when spot market price has strong fluctuation, buyers would increase the procurement from forward contracts, while when the range of demand requirement is wide, buyers would purchase more commodities in spot market to satisfy the demand requirement.In the second model, we study a procurement management model relative to two-stage demand requirement, where demand requirement in the first stage, denoted by t1, is constant while the one in the second stage, denoted by t2, is random. Firstly we prove that there exists a unique minimal value in the cost function in case of the distributions of spot market price and demand requirement being uniform. Then give some numerical experiments to show good effective of the model. Finally we study the model in the other case of different distributions of price and demand requirement. By contrasting models among different distri-butions, we acquire the following results:when the price has strong fluctuation, buyers would increase the procurement from forward contracts to avoid the caused risk, while when the range of demand requirement is wide, buyers would purchase more commodities in spot market in effect of satisfying the demand requirement.Based on the second model and the idea of conditional expectation, we give the final model with parameters of two stages t1 and t2. Firstly, in case of complex cost function and distributions of demand requirement and spot market price being uniform at two stages, we give optimal procurement policies by numerical calculation. Secondly in case of distribution of demand requirement being uniform while the distribution of spot market price being random, we also give optimal procurement policies. By contrasting models among different distributions, we obtain the results as follows:when spot market price has strong fluctuation, buyers would increase the procurement from forward contracts and decrease procurement from forward contract to avoid the risk caused by the uncertainty of spot market price.