A Study Of Procurement-inventory Decision Model Based On Spot Price

In recent years the spot market is rapidly developed. The procurement in spotmarket is more and more important, since it has shorter lead time and almost no limitsin procurement volume, which brings in more flexibility in contrast to former long-term contracts. However, the price fluctuates more fiercely in spot market, which isone of the remarkable characteristics.From this background, taking crude oil refineries as an example, we consider thefeatures of procurement in spot market. This thesis mainly studies the procurement-inventory decision model with fluctuating prices and obtains the procurement policyconcerning the current spot price. Based on the procurement processes, we build anoptimal control problem to minimize inventory control costs. According to the Prin-ciple of Optimality in dynamic programming, HJB equations are derived. That is asystem of second order partial diferential equations. Since there is no closed-formsolution, we choose numerical method to solve the problem. Explicit finite diferencemethod is applied and optimal inventory policy is obtained. We also employ numer-ical experiments to analyze the influences of diferent parameters. The problems weencounter in this study are summarized and future research directions are stated.This model contributes to both of theoretical studies and practical decisions forpurchase managers. The inventory control policy derived in this study is similar to basestock policy but the threshold is varying with the spot price. When the inventory levelis lower than the threshold, procurement is trigged and the inventory level is broughtup instantaneously. The inventory threshold decreases with the spot price.