Two-Stage Ordering Policy under Buyer's Minimum-Commitment Quantity Contract

Hsi-Mei Hsu, Zi-Yin Chen
2011 American Journal of Operations Research  
In this paper we consider a two-stage ordering problem with a buyer's minimum commitment quantity contract. Under the contract the buyer is required to give a minimum-commitment quantity. Then the manufacturer has the obligations to supply the minimum-commitment quantity and to provide a shortage compensation policy to the buyer. We formulate a dynamic optimization model to determine the manufacturer's two stage order quantities for maximizing the expected profit. The conditions for the
more » ... ons for the existence of the optimal solution are defined. And we also develop a procedure to solve the problem. Numerical examples are given to illustrate the proposed solution procedure and sensitivity analyses are performed to find managerial insights.
doi:10.4236/ajor.2011.13012 fatcat:yjmvx4kj5zbrbmzr3pa3rlzlmu