Supplier Selections and the Minimum Purchase Obligation Decisions for Product Components amidst Potential Disruptions and Contractual Obligations

• In Event: PROCUREMENT and SOURCING: Procurement Analytics

Abstract

This research explores strategies for a firm to select suppliers and set minimum purchase obligations, considering demand deviations during supply interruptions. This is done under the framework of minimum commitment contracts, aiming to optimize overall profit while mitigating downside risks. The study expands to address multi-component purchases, utilizing a numerical analysis to illustrate how changes in disruption probability and other parameters influence minimum commitment quantities. Additionally, it demonstrates risk management by diversifying backup suppliers for multiple components.

Authors

• Xiangling Hu, Grand Valley State University

• Ping Su, Hofstra University