Paper Info
Title
Optimal decision making in multi-product dual sourcing procurement with demand forecast updating
Abstract
In this paper, we will investigate a buyer's decision making problem in procuring multiple products, each treated as a newsvendor, from two markets. The contract market has a long lead time, a fixed wholesale price and resource constraints. While the spot market has an instant lead time and a highly volatile price. The purchasing decision at the spot market can be made near the beginning of the selling season to take the advantage of the most recent demand forecast. The buyer needs to determine the purchasing quantity for each product at the two markets to maximize the expected profit by trading off between the resource availability, demand uncertainty and price variability. The procurement decision making is modeled as a bi-level programming problem under both a single resource constraint and under multiple resource constraints. We show that this bi-level programming problem can be formulated as a single-level concave programming problem. We then develop a sequential algorithm which solves for a linear approximation of the concave programming problem in each iteration. This algorithm can be used to solve a real world problem with up to thousands of kinds of products, and is found to be highly efficient and effective.
Year
DOI
Venue
2014
10.1016/j.cor.2013.07.015
Computers & OR
Keywords
DocType
Volume
concave programming problem,contract market,spot market,optimal decision,multiple resource constraint,resource availability,single resource constraint,bi-level programming problem,resource constraint,real world problem,demand forecast,single-level concave programming problem
Journal
41,
ISSN
Citations 
PageRank 
0305-0548
5
0.44
References 
Authors
20
4
Name
Order
Citations
PageRank
Hua-Ming Song1131.94
Hui Yang250.44
Alain Bensoussan3367170.17
Ding Zhang412614.26