Quantity Flexibility Contract Research Articles

Integrated relief pre-positioning and procurement planning considering non-governmental organizations support and perishable relief items in a humanitarian supply chain network

The escalating frequency and severity of disasters on a global scale have sparked inquiries into the efficacy of current disaster planning strategies in various scenarios. Despite the pivotal role of humanitarian supply chain planning in aiding impacted populations, much of the existing research is grounded in simplistic assumptions that limit their practicality. Addressing this gap, our proposed bi-objective model aligns response time and total cost, while also accommodating the collaboration between non-governmental organizations and governmental organizations to mirror real-world intricacies. This study comprehensively delves into various logistics aspects, encompassing pre- and post-disaster phases, including location, allocation, supplier selection, fleet size, supply contract, inventory, distribution, and transportation. This multifaceted approach enhances the model's suitability for managing genuine real-world emergencies. To mitigate disruption risks and unforeseen events, the model introduces pre-positioning, quantity flexibility contract, backup suppliers, and a multi-sourcing policy, thus enhancing the resilience and reliability of the logistics network. We present solutions for diverse scenarios through a scaled weighted sum method, while tackling uncertainty via a heuristic approach known as the backward scenario reduction method. Furthermore, to manage large-scale problems within an acceptable time frame, we propose an advanced hybrid algorithm. This algorithm synergizes a parallel differential evolution framework with reinforcement learning-enhanced local search mechanisms, aiming to improve both computational efficiency and solution accuracy. Finally, we validate the model's applicability through a real case study focusing on a flood scenario in Iran.

Quantity Flexibility Contract Model for Emergency Procurement Considering Supply Disruption

Quantity Flexibility Contract Model for Emergency Procurement Considering Supply Disruption

Integrating pre and post-disaster activities for designing an equitable humanitarian relief supply chain

The design of an efficient humanitarian relief supply chain (HRSC) for disaster management depends on the integration of pre- and post-disaster decisions, which reduces the suffering of the victims and saves lives. The use of strategies such as quantity flexibility contracts in the pre-disaster phase and evacuation management in the post-disaster phase significantly increase the efficiency of HRSCs for disaster management. Therefore, in this paper, for the first time, a comprehensive two-stage stochastic mixed-integer linear programming model is presented for integrating the pre- and post-disaster activities for possible disasters such as floods and earthquakes by considering quantity flexibility contract and equitable relief goods distribution. In addition, the proposed model determines the location of warehouses and inventory levels in these warehouses in the pre-disaster phase. It also deals with public donations and budget planning, planning vehicles and helicopters, locating hospitals and shelters, and optimizing the inventory flow between echelons in the post-disaster phase. In the proposed model, the quantity flexibility contract is applied to decrease the inventory level in the pre-disaster phase, and reduce the supply risk in the post-disaster phase. The efficiency and performance of the proposed model are evaluated using the data related to a possible earthquake in Karaj (one of the metropolises of Iran).

Design of a sales plan in a hybrid contractual and non-contractual context in a setting of limited capacity: A robust approach

Many companies face capacity limitations that impair them to satisfy potential demand. In this context, sales/marketing teams have to decide which demand segments the company should prioritize. In business-to-business contexts, it is common that this selection includes customers with and without a contract. On the operations side, the production teams are interested in finding the most efficient usage for the available capacity. However, decision-making approaches to face such a challenge are scarce. In this paper, we propose a scenario-based robust optimization model to support the sales and marketing teams to define the most profitable sales plan in a setting of limited capacity, to serve multiple customers that can be either non-contractual or operate under quantity-flexibility contracts. The proposed model integrates contract design, portfolio selection, and tactical production planning decisions. By employing our model, we are able to quantify how a product’s inclusion in a contract relates not only to its own profitability but also to the profitability of the remaining products that might be offered to the customer using the same resources. Regarding the optimal flexibility level to offer to a customer, it is explained by the expected sales volume, the discount rate depending on the flexibility level, and the demand variability expectation. We expect this approach supports industrial companies in defining the mid-term sales plan and deciding on the conditions to offer to contract customers.

Reverse Supply Chain Management Through a Quantity Flexibility Contract: A Case of Stochastic Remanufacturing Capacity

This article investigates a two-echelon reverse supply chain (RSC) where a third-party logistics provider charges customers to return outdated products. A green manufacturer refurbishes qualified returned products through the remanufacturing process. Remanufacturing capacity is considered a stochastic variable. Under the volatility of remanufacturing capacity, some likely examined, and qualified products could not be remanufactured. If a collected product cannot be processed, it should be salvaged at a lower value and be perceived as a lost profit. In such scenarios, increasing the quantity of returned outdated products is suitable if there is a strong possibility of enough capacity in the remanufacturing process. This paper develops a stochastic model to identify the optimal order quantity under diverse contracts, including wholesale price, centralized, and quantity flexibility contracts. Under the quantity flexibility contract, the green supplier might cancel its preliminary order in a restricted quantity. Additionally, third-party logistics supplier offers a restricted quantity above the initial order to minimize understocking during peak seasons. Our numerical experiments demonstrate that the suggested quantity flexibility can coordinate the examined RSC under the volatility of remanufacturing capacity. Contrary to wholesale and centralized contracts, quantity flexibility is a more practical alternative from the perspective of participants’ profitability.

Coordination of humanitarian logistic based on the quantity flexibility contract and buying in the spot market under demand uncertainty using NSGA-II and NRGA algorithms

The extant study aimed to create a kind of coordination in the humanitarian chain by using a quantity flexibility (QF) contract. The QF contract considers a kind of coordination between a relief organization and a producer for inventory management determining order volumes. Due to insufficiency of amenities or time limits during the crisis, an internal producer can outsource a part of its duties to an external producer to produce items and accelerate the relief process. Hence, this study proposed a completely novel bi-objective mathematical model to coordinate relief items’ supply and distribution by using QF contracts and buying in the spot market under demand uncertainty conditions to reduce costs and accelerate relief services. The augmented epsilon constraint method was used to solve the small scales of this model and NSGA-II and NRGA algorithms were employed to solve large scales. The results indicated the powerful performance of NRGA in terms of most evaluation indicators.

A Systematic Literature Review on Quantity Flexibility Contracts in a Supply Chain System

This is the first to comprehensively review the issues such as contract parameters and research models/methods of Quantity Flexibility Contract (QFC) in a supply chain system. We are experiencing a low-frequency-high-impact (LFHI) event such as coronavirus (COVID-19), and rapid technological changes, bringing about a rapid change in customer demand now. Matching supply with demand is one of the biggest challenges in Supply Chain Management (SCM). That is because a sudden rise or drop in customer demand makes it difficult to coordinate objectives between a manufacturer and a retailer. Meanwhile, a QFC has been highlighted as an intensive method in response to this rapid change by gaining time for better observing the market demand before placing its final orders. The intention of this paper is twofold. First, we classify QFC’s articles into contract parameters, comparison and composition of QFC with other strategies and contract types, research models, and methods up to the present point. Second, we guide the future research directions and developments of QFC so that many researchers start easily approaching and studying it. We hope that our discovery from the review provides opportunities to spot gaps in the literature that could be accomplished and values for further future research directions.

Food waste recycling closed loop supply chain optimization through renting waste recycling facilities

• Cooperation of a food trading company and a peri-urban located recycling plant • Proposing a contract in a real food supply chain in order to reduce waste amounts • Recycling food waste by renting peri-urban located recycling facilities • Developing a quantity flexibility contract with standard and expedited lead times Optimization techniques in reverse logistics and closed-loop supply chains (CLSC) may effectively address food waste problem in urban areas. Motivated by recent advances in collecting/recycling food wastes through recycling supply chains, this study contributes to optimizing such a recycling channel in urban areas. We examine if renting waste-recycling facilities by a food trading company located in urban areas, where production/recycling processes are prohibited, is able to mitigate the problem. This paper examines a three-tier CLSC, including a trading company located in urban areas, a production plant located in peri-urban zones, and a food-waste-collector, in which food-waste is collected from restaurants/chain-stores for recycling purposes. The trading company rents waste-recycling facilities from the production plant in the peri-urban zones to carry out the relevant processes. To coordinate the channel, a novel Quantity Flexibility (QF) contract is developed. Results, based on a real case study in the meat products supply chain, show that profitability of the supply chain is increased using the proposed QF contract significantly (e.g., 30 percent increase in the food-waste-collector's expected profit). The findings from our developed models can help food supply chain managers to find cost-effective solutions for cooperating with other supply chain members. Our results show a Pareto-improvement outcome.

Why Do Companies Need Operational Flexibility to Reduce Waste at Source?

We analyze the environmental benefits of operational flexibility that emerge in the form of less product waste during the sourcing process by reducing overproduction. We consider three different options for operational flexibility: (1) lead-time reduction, (2) quantity-flexibility contracts, and (3) multiple sourcing. We use a multiplicative demand process to model the evolutionary dynamics of demand uncertainty. We then quantify the impact of key modeling parameters for each operational-flexibility strategy on the waste ratio, which is measured as the ratio of excess inventory when a certain operational-flexibility strategy is employed to the amount when an offshore supplier is utilized without any operational flexibility. We find that the lead-time reduction strategy has the maximum capability to reduce waste in the sourcing process of buyers, followed by the quantity-flexibility and multiple-sourcing strategies, respectively. Thus, our results indicate that operational-flexibility strategies that rely on the localization of production are key to reducing waste and improving environmental sustainability at source.

New Retailing Problem for an Integrated Food Supply Chain in the Baking Industry

As coronavirus disease 2019 (COVID-19) continues to spread, online consumption habits in China have changed significantly. Thus, the booming online-to-offline (O2O) food ordering and delivery industry via the online bakery have been changing customers’ food shopping behavior. This article proposes a comparison relying on advanced O2O strategy for a single-vendor-single-retailer integrated system. Three coordination mechanisms consist of revenue-sharing, buy-back, and quantity flexibility contracts have been employed for optimizing the order quantity. Replenishment strategies and temperature for the supply chain members are considered based on the new retailing framework. Herein, the authors suggest an algorithm for the computation of the optimal solution. Lastly, numerical examples and sensitivity analysis are also conducted to clarify the usefulness of the proposed model in the food supply chain. Sensitivity analysis revealed a number of managerial insights. For example, the results obtained under O2O operations can be compared with those obtained under online/offline operations (under various parameters settings) to determine an opportune moment for three coordination mechanisms.

Handling of revenue sharing contracts within the scope of game theory

One of the most important problems faced in supply chain management is the coordination between supply chain members. Supply chain contracts, such as buyback contract, quantity-flexibility contract, revenue sharing contract, etc., can be used for solving this problem. In revenue sharing contracts, the manufacturer applies a low wholesale price to the retailer and in return shares a portion of the retailer’s revenue. In this study, the revenue sharing contracts between the supplier and the retailer are handled as two-person non-constant sum games. There are two players in the game, supplier and retailer, and the main motivation of both is to increase their profitability. To this end, the supplier applies different wholesale prices, while the retailer responds by using different revenue sharing rates. In the study, profit functions of the supply chain members are calculated in the event of an income sharing agreement. These functions differ due to changes in supply chain parameters. The profits of the retailer and supplier corresponding to different wholesale prices and revenue sharing rates have been transferred to the two-person non-constant sum game revenue matrix. Then, the best strategies of the supplier and retailer are tried to be determined by the search of equilibrium point which is one of the solution methods that can be used to determine the best strategies in two-person non-constant sum games. The results showed that the solution approaches of game theory can be applied successfully in determining the best strategies that the parties can implement in revenue sharing contracts between the supplier and the retailer.

Preserving relational contract stability of fresh agricultural product supply chains

<p style='text-indent:20px;'>Since agricultural cooperatives have developed rapidly under the farmland transfer policy in China, they play an important role in the new operation pattern for China's fresh agricultural product supply chains. To enhance current agricultural supply chains' stability, we consider a three-level (farmer-cooperative-retailer) fresh agricultural product supply chain, conduct quantitative analysis of the impact of the quantity flexibility contract, and compare the impact of the relational contract with that of the quantity flexibility contract on the freshness and the profit. Our results show that a suitable relational contract can improve the freshness and increase the profit of the three-level supply chain, but cannot fully guarantee its stability. Furthermore, the government's subsidy policy can improve the relational contract stability of the fresh agricultural product supply chain by providing the protection price contract mechanism of the agricultural product and the cold chain facility subsidy contract.

Supply Chain Coordination with a Loss-Averse Retailer and Combined Contract

This paper studies the supply chain coordination where the retailer is loss-averse, and a combined buyback and quantity flexibility contract is introduced. The loss-averse retailer’s objective is to maximize the Conditional Value-at-Risk of utility. It is shown the combined contract can coordinate the chain and a unique coordinating wholesale price exists if the confidence level is below a threshold. Moreover, the retailer’s optimal order quantity, expected utility and coordinating wholesale price are decreasing in loss aversion and confidence levels, respectively. We also find that when the contract parameters are restricted, the combined contract may coordinate the supply chain even though neither of its component contracts coordinate the chain.

Optimal Spot Trading Integrated with Quantity Flexibility Contracts

In this study, we consider a company that uses two channels for trading: long‐term contracts and spot markets. With a quantity flexibility long‐term contract, the buyer commits to purchasing at least as much as the minimum order quantity and is able to reserve capacity with the forward contract supplier up to the maximum order quantity in each period at a predetermined price. Through the spot market, the buyer can order or sell inventory at an uncertain future spot price without quantity limitations. A fixed setup cost is incurred in each instance of buying or selling in the spot market. This study considers very general inventory‐related (not necessarily convex) costs, and demand is random following a one‐sided Pólya distribution. We introduce a concept called “non‐(K1, K2)‐decreasing with changeovers” and characterize the optimal trading policy in the spot market. We show that the optimal policy can be characterized by five critical points. We also characterize optimal procurement from the contracted supplier under certain conditions. Two simple, yet efficient, heuristics that yield near‐optimal results in many cases are presented as well in order to calculate procurement quantities. Moreover, we show that our results also apply to uniform demand, which is not Pólya, and numerical tests assuming uniform demand are performed to discern which factors are most important and to gain managerial insights.

Supply chain coordination through capacity reservation contract and quantity flexibility contract

This study considers a supply chain consisting of two independent agents, a manufacturer and a retailer. The demand and the price of the product are both uncertain, whereas capacity cost is high and capacity lead time is long. As a result, the manufacturer may not have the incentive to expand capacity if the retailer does not share the risk with her. This result induces a lower performance of the supply chain. We propose two types of contracts, i.e., capacity reservation contract and quantity flexibility contract, as risk-sharing mechanisms to encourage the manufacturer to expand the capacity and improve the overall performance of the supply chain. We find that when supply chain coordination is not achieved, our contracts can bring more system profit than other contracts with less flexibility. We further show that by setting elaborate parameters, the two contracts can coordinate the supply chain so that the total profit in the decentralized supply chain is the same as that in the centralized system. Furthermore, we compare the two contracts in terms of capacity and profits. We also show that the retailer prefers the quantity flexibility contract under coordination. Our conclusions are robust when the demand and retail price are correlated.

Coordination by quantity flexibility contract in a two-echelon supply chain system: Effect of outsourcing decisions

This paper investigates a two-echelon supply chain (SC) with one product and two members, including one manufacturer and one retailer under stochastic demand. A quantity flexibility (QF) contract is applied where the retailer is allowed to update its primary order both downwards and upwards to share overstocking and overproduction risks between both channel members. In the proposed QF model, it is possible for the manufacturer to outsource production based on a reservation fee. The manufacturer's decision variable is in-house/outsource amount while the retailer decides on order quantity. Numerical experiments and sensitivity analyses have been implemented on the contract parameters. The results indicate that outsourcing a fraction of production not only increases the profit of the supply chain but can also increase each member's profit.

Development of a Method to Increase Flexibility and Changeability of Supply Contracts in the Automotive Industry

The electric mobility market is characterized by demand volatility and a changing supply chain with new to the industry suppliers. In order to cope with demand volatility, the production capacities must be synchronized with external supply chain partners through changeability and flexibility measures. We define flexibility as the ability to quickly react to changing demand volumes within the current supply chain and production structure. Changeability needs further investments to adapt to the changing environment. This paper presents a method for the design of flexible and changeable supply chains, predicated on an examination of two companies’ production systems and two different supply contract designs. We consider a quantity flexibility contract and a new developed contracting matrix. The method is being validated by a prototypical application in the production of electrified automotive powertrains. The results show an increase in supply chain flexibility for the quantity flexibility contract and we are able to introduce a changeable supply chain with the use of the contracting matrix.

A framework for evaluation of supply chain coordination by contracts under O2O environment

Over the past decade, a significant change has occurred in the way businesses progress, and that change is largely due to rapidly changing technology. The entire world depends on the online network that has radically changed our perspective of how business should be managed. The faster a company adapts, the more quickly that company can outpace its competitors, and a new approach that is attracting attention is called Online to Offline (O2O).This paper establishes a comparison based on O2O approach; our model considers two types of demand under three coordination mechanisms (revenue-sharing, buy-back, and quantity flexibility contracts). We demonstrate that the best outcome and the highest profit is achieved with the O2O deterministic demand under the quantity flexibility agreement. However, the stochastic demand case attains the same result. This paper presents a fruitful introduction to this emerging topic, and future research might compare several coordination mechanisms using the Stackelberg game theory.

Coordination of relief items procurement in humanitarian logistic based on quantity flexibility contract

Nowadays, coordination of relief items procurement in humanitarian logistics has become one of the main challenges of disaster management. In this paper, we utilize a quantity flexibility contract (QFC) to coordinate ordering activities in a three-echelon relief chain. This multi-echelon supply chain consists of a relief organization (i.e., NGO), one relief item supplier, and affected areas. In the proposed QFC, initially, the relief organization places an order before the disaster strikes and is committed to purchasing the initial quantity no less than a previously agreed amount. On the other hand, the supplier is committed to providing up to a certain amount above the initial order, if needed. Expected profit functions of relief chain members include transportation cost, inventory cost, the manufacturing cost of relief items, shortage cost, salvage value, and satisfaction level of affected areas. Our findings show that, under demand uncertainty, the proposed QFC not only prevents significant losses at relief organization but also enhances satisfaction level of the affected areas. Finally, the performance of the proposed coordination model is examined via various numerical experiments and managerial insights are extracted.

Mitigating supply risk: an approach with quantity flexibility procurement

This paper considers a buyer that procures from its major supplier whose production is subject to random yield risk. To mitigate supply risk, the buyer can procure from another reliable supplier who provides quantity flexibility (QF) contract. Under both deterministic and stochastic demand, we study the buyer’s optimal procurement decisions. We analyze the structural properties of optimal solutions and identify the conditions under which the quantity flexibility procurement policy should be used. We also examine the effect of supply risk, flexibility, wholesale price and demand risk on the procurement decisions. We find that the higher supply risk and demand risk reduce the buyer’s profit but have different impact on the buyer’s order policy. For the QF supplier, it may not obtain more orders by providing larger flexibility to the buyer, on the contrary, doing this may benefit the risky supplier. For the QF supplier or risky supplier, given its competitor’s wholesale price, it can increase its order share by lower wholesale price.