Optimal procurement strategies under yield uncertainty with spot market

Abstract

The globalization and outsourcing trend makes supply chain vulnerable in the industry. As one important activity of supply chain, procurement planning should be formulated by considering operational risk and disruptive risk in the dynamic business environment. Therefore, procurement decision making under uncertainty has attracted considerable attention by both academia and industry. One of the challenges faced by enterprise is when reactive supply or spot market should be used to reduce yield risk. Most existing models only consider expected profits but overlook the variance of profits. Based on this research gap, a research problem of how to make optimal procurement decisions under yield uncertainty in the presence of spot market is studied. Mathematical model based on mean-variance framework is developed to obtain analytical solutions. The effects of related risk factors on optimal decisions are examined.