DOI: 10.5176/2251-1938_ORS16
Authors: Jishnu Hazra
Abstract:
It is a common practice in several sectors of the industry to have contractual agreement with suppliers that enables buyers to reserve capacity in advance. However, if manufacturers require more capacity to meet additional demand, they could procure it in a shorter time by tapping the “open market” at a higher price. Capacity reservation offers several benefits to supply chain members. It helps to mitigate the “bull-whip effect” characteristic of several supply chains [1]. Moreover, contracts provide buyers the required flexibility to handle uncertain demand and permit better capacity planning. We analyze the situation in which a buyer facing uncertain demand could source capacity from either a set of suppliers by contracting in advance or the spot market.
Keywords: Supply Chain, Supplier Selection, Capacity Reservation
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