Procurement management in agricultural commodity processing
This chapter provides insights on the optimal procurement decisions of a commodity processing firm that sources a primary input from a quantity flexibility contract (which is characterized by a unit reservation price and a unit exercise price), to produce two outputs in fixed proportions. The firm f...
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sg-smu-ink.lkcsb_research-79382022-02-21T01:52:28Z Procurement management in agricultural commodity processing BOYABATLI, Onur LI, Bin This chapter provides insights on the optimal procurement decisions of a commodity processing firm that sources a primary input from a quantity flexibility contract (which is characterized by a unit reservation price and a unit exercise price), to produce two outputs in fixed proportions. The firm faces uncertainties in input spot price and output demands. Our objective is twofold. First, in a single-contract setting, we investigate the role of demand correlation in the presence of fixed proportions technology and show that the firm benefits from a higher demand correlation. Second, we investigate the firm’s optimal contract selection strategy between the two available quantity flexibility contracts. Focusing on deterministic output demands, we characterize a contract index in closed form that determines the optimal contract choice. We find that a higher expected spot price always increases the reliance on the contract with the lower exercise price. However, a higher spot price variability does the same only when the expected spot price is low and the difference between the exercise prices of two contracts is sufficiently high. Otherwise, a higher spot price variability increases the reliance on the contract with the lower reservation price. 2022-02-01T08:00:00Z text https://ink.library.smu.edu.sg/lkcsb_research/6939 info:doi/10.1007/978-3-030-81423-6_5 https://doi.org/10.1007/978-3-030-81423-6_5 Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University Agriculture Commodity processing Multiple outputs Spot market Contract selection Agribusiness Operations and Supply Chain Management |
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Agriculture Commodity processing Multiple outputs Spot market Contract selection Agribusiness Operations and Supply Chain Management BOYABATLI, Onur LI, Bin Procurement management in agricultural commodity processing |
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This chapter provides insights on the optimal procurement decisions of a commodity processing firm that sources a primary input from a quantity flexibility contract (which is characterized by a unit reservation price and a unit exercise price), to produce two outputs in fixed proportions. The firm faces uncertainties in input spot price and output demands. Our objective is twofold. First, in a single-contract setting, we investigate the role of demand correlation in the presence of fixed proportions technology and show that the firm benefits from a higher demand correlation. Second, we investigate the firm’s optimal contract selection strategy between the two available quantity flexibility contracts. Focusing on deterministic output demands, we characterize a contract index in closed form that determines the optimal contract choice. We find that a higher expected spot price always increases the reliance on the contract with the lower exercise price. However, a higher spot price variability does the same only when the expected spot price is low and the difference between the exercise prices of two contracts is sufficiently high. Otherwise, a higher spot price variability increases the reliance on the contract with the lower reservation price. |
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BOYABATLI, Onur LI, Bin |
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BOYABATLI, Onur LI, Bin |
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BOYABATLI, Onur |
title |
Procurement management in agricultural commodity processing |
title_short |
Procurement management in agricultural commodity processing |
title_full |
Procurement management in agricultural commodity processing |
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Procurement management in agricultural commodity processing |
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Procurement management in agricultural commodity processing |
title_sort |
procurement management in agricultural commodity processing |
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Institutional Knowledge at Singapore Management University |
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2022 |
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https://ink.library.smu.edu.sg/lkcsb_research/6939 https://doi.org/10.1007/978-3-030-81423-6_5 |
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