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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Main Authors: BOYABATLI, Onur, LI, Bin
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Language:English
Published: Institutional Knowledge at Singapore Management University 2022
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Online Access:https://ink.library.smu.edu.sg/lkcsb_research/6939
https://doi.org/10.1007/978-3-030-81423-6_5
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spelling 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
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Agriculture
Commodity processing
Multiple outputs
Spot market
Contract selection
Agribusiness
Operations and Supply Chain Management
spellingShingle 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
description 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.
format text
author BOYABATLI, Onur
LI, Bin
author_facet BOYABATLI, Onur
LI, Bin
author_sort 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
title_fullStr Procurement management in agricultural commodity processing
title_full_unstemmed Procurement management in agricultural commodity processing
title_sort procurement management in agricultural commodity processing
publisher Institutional Knowledge at Singapore Management University
publishDate 2022
url https://ink.library.smu.edu.sg/lkcsb_research/6939
https://doi.org/10.1007/978-3-030-81423-6_5
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