Dual Sourcing Using Capacity Reservation and Spot Market

Optimal Procurement Policy and Heuristic Parameter Determination

Autor/innen

  • Karl Inderfurth
  • Peter Kelle
  • Rainer Kleber

DOI:

https://doi.org/10.24352/UB.OVGU-2018-457

Schlagworte:

Dual sourcing, capacity reservation, spot market, procurement policy, stochastic dynamic programming

Abstract

This contribution focuses on the cost-effective management of the combined use of two procurement options: the short-term option is given by a spot market with random price, whereas the long-term alternative is characterized by a multi period capacity reservation contract with fixed purchase price and reservation level. A reservation cost, proportional with the reservation level, has to be paid for the option of receiving any amount per period up to the reservation level. A long-term decision has to be made regarding the reserved capacity level, and then it has to be decided - period by period - which quantities to procure from the two sources. Considering the multi-period problem with stochastic demand and spot price, the structure of the optimal combined purchasing policy is derived using stochastic dynamic programming. Furthermore, a simple heuristic procedure is developed to determine the respective policy parameters. Finally, we present a comprehensive numerical study showing that our heuristic policy performs very well.

Veröffentlicht

2018-10-10

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