THE SINGLE PERIOD PROCUREMENT PROBLEM WHERE DEDICATED SUPPLIER CAPACITY CAN BE RESERVED

In this article we consider the single period procurement strategy for an item with uncertainty in its demand and uncertainty in the capacit y of the supplier. Dedicated capacity can be ensured by paying a premi um charge to the supplier. The other decision variable is the replenis hment quantity to request. It turns out to be very easy to select the best value of this latter quantity. On the other hand, we are only abl e to characterize the general behavior of the expected profit as a fun ction of the level of dedicated capacity. In general, there can be mul tiple local maxima as a function of the dedicated capacity. However, f or the special, but important, case of normally distributed demand, no rmally distributed capacity and a linear cost for reserving capacity, an algorithm is developed for finding the best level of dedicated capa city. Some preliminary insights regarding the extension to multiple pe riods are presented. (C) 1995 John Wiley & Sons, Inc.