Y. Bassok et al., DESIGN OF COMPONENT-SUPPLY CONTRACT WITH COMMITMENT-REVISION FLEXIBILITY, IBM journal of research and development, 41(6), 1997, pp. 693-703
In this paper, we study a type of supply contract that is frequently u
sed in the electronics industry. A common feature of these supply cont
racts is that at the beginning of the contract, the buyer makes purcha
sing commitments to the supplier for each period. The buyer may have s
ome flexibility to purchase quantities that actually deviate from the
original commitments. Moreover, as time passes and more information ab
out the actual demand is collected, the buyer may update the previous
commitments, in a way that is described. We develop a heuristic that i
s easy to implement and that determines nearly optimal commitments and
purchasing quantities. We show that in many cases of practical intere
st, the heuristic results in solutions that are close to the optimal.