Supply chain operations in the presence of a spot market: a review with discussion

Abstract

We survey the recent literature on the use of spot market operations to manage procurement in supply chains. We present results in two categories: work that deals with optimal procurement strategies and work related to the valuation of procurement contracts. As an example of the latter, we provide new results on valuation of a supply contract with abandonment option. Based on our review, we also discuss the scope for doing further work.

Keywords:

• supply chain contracts
• stochastic dynamic programming
• risk
• real options
• practice of OR

Acknowledgements

We would like to sincerely thank the special issue editor Professor Gautam Mitra, the associate editors, and the two referees whose constructive comments and suggestions have improved the quality and the presentation of the paper. We also appreciate the beneficial discussions with Vishal Gaur, Victor Araman, Ashay Kadam, and Caroline Wiertz. Research assistance of Aslı Zeynep Kara is kindly acknowledged.