Joint Ordering and Selling Policy for Storable Agricultural Products in Contract Farming

Abstract

With the farming mode widely promoted in many countries around the world, agricultural enterprises need to face risks from both supply and sales at the same time. Especially for storable agricultural products, it is also necessary to consider the potential profits and losses brought about by the sales of multi-period. This paper establishes a joint ordering and selling decision model under multiperiod random supply and demand. The model takes the maximum expected profit of agricultural enterprises as the goal, considers the constraints of production capacity and the risk preference coefficient of shortage, and makes decisions on the order and sales quantity in each cycle. The feasibility of the model was verified by taking China Yunnan Pu’er tea as a specific example. Finally, through numerical examples, the influence of important parameters on the joint ordering and selling strategy is as follows: order cost is the main factor affecting the order quantity. When the order cost increases to a certain level, the solving algorithm will make a decision that would rather be out of stock than to order. With the increase in selling price, inventory holding cost, and shortage cost, there will be an increasing trend of the sales quantity allocated to this period. Compared with other parameters, selling price and inventory holding cost have a more remarkable impact on sales quantity. In addition, enterprises can increase their expected profits of storable agricultural products by controlling the inventory holding cost, appropriately reducing the risk preference coefficient, and increasing the level of the selling price.