Principal Investigator David Simchi-Levi
Project Website http://supplychain.mit.edu/innovation/research-contract.htm
We consider a multi-period environment in which an industrial buyer needs to decide on long-term supply contracts with little information on demand or spot-market price. A contract is a portfolio of fixed commitment and several types of options. We address both the optimal replenishment strategy for a given contract as well as the structure of the optimal contract. Specifically, we focus on finding the optimal trade-off between cost, inventory risk, shortage risk and price risk.