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Excess Procurement Strategies by a Dominant Buyer under Constrained Supply

Tarun Jain, Jishnu Hazra and Jayashankar M Swaminathan
Journal Name
Naval Research Logistics
Journal Publication
others
Publication Year
2019
Journal Publications Functional Area
Production & Operations Management
Publication Date
Vol. 66, Issue 3, April 2019, Pg. 272-280
Abstract

Supply chains are often characterized by the presence of a dominant buyer purchasing from a supplier with limited capacity. We study such a situation where a single supplier sells capacity to an established and more powerful buyer and also to a relatively less powerful buyer. The more powerful buyer enjoys the first right to book her capacity requirements at supplier's end, and then the common supplier fulfills the requirement of the less powerful buyer. We find that when the supplier's capacity is either too low (below the lower threshold) or too high (above the higher threshold), there is no excess procurement as compared to the case when supplier has infinite capacity. When the supplier's capacity is between these two thresholds, the more powerful buyer purchases an excess amount in comparison to the infinite capacity case.

Excess Procurement Strategies by a Dominant Buyer under Constrained Supply

Author(s) Name: Tarun Jain, Jishnu Hazra and Jayashankar M Swaminathan
Journal Name: Naval Research Logistics
Volume: Vol. 66, Issue 3, April 2019, Pg. 272-280
Year of Publication: 2019
Abstract:

Supply chains are often characterized by the presence of a dominant buyer purchasing from a supplier with limited capacity. We study such a situation where a single supplier sells capacity to an established and more powerful buyer and also to a relatively less powerful buyer. The more powerful buyer enjoys the first right to book her capacity requirements at supplier's end, and then the common supplier fulfills the requirement of the less powerful buyer. We find that when the supplier's capacity is either too low (below the lower threshold) or too high (above the higher threshold), there is no excess procurement as compared to the case when supplier has infinite capacity. When the supplier's capacity is between these two thresholds, the more powerful buyer purchases an excess amount in comparison to the infinite capacity case.