A negotiation aid for fixed-quantity contracts with stochastic demand and production

Thomas A. Grossman, Thomas R. Rohleder, Edward A. Silver

Research output: Contribution to journalArticlepeer-review

7 Scopus citations


Consider an organization whose capability to produce an item and whose customer demand are both stochastic. In such a context "take-or-pay" contracts can be attractive. Under such a contract the organization agrees to purchase from a supplier a fixed quantity per period over a specified number of periods. Simulation is too slow an analysis approach for the typical dynamic negotiation situation. We use a Markovian approach to create a tool that negotiators can use to evaluate the expected cost of a proposed contract, considering the stochastic demand and all relevant cost components. The approach is fast enough to use in real time, and yields accurate (sometimes exact) results.

Original languageEnglish (US)
Pages (from-to)67-76
Number of pages10
JournalInternational Journal of Production Economics
Issue number1
StatePublished - Jun 5 2000


  • Contracting
  • Markov models
  • Negotiation
  • Purchasing

ASJC Scopus subject areas

  • General Business, Management and Accounting
  • Economics and Econometrics
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering


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