The structure of the optimal combined sourcing policy using capacity reservation and spot market with price uncertainty

Abstract

This contribution focuses on the cost-effective management of the combined use of two procurement options: the short-term option is given by a spot-market with random price, whereas the long-term alternative is characterized by a multi period capacity reservation contract with fixed purchase price, reservation level and capacity reservation cost. Considering a multiperiod problem with stochastic demand, the structure of the optimal combined purchasing policy is derived using stochastic dynamic programming.