Commodity Procurement with Operational and Financial Instruments (PDF)

5 Conclusions and Outlook (S. 103-104)

5.1 Conclusions

This thesis considered deterministic commodity procurement and production problems and stochastic commodity procurement problems in presence of a ?nancial market in order to isolate dynamic and stochastic effects. The deterministic problems investigated dynamic manufacturing and procurement models in continuous time (Sections 3.2 and 3.3) and were solved using an optimal control approach. The key result is a crucial trade-off for the decisions of timing the production/procurement and determining the production/procurement quantity which holds for general price, cost, and demand functions and is as follows.

• In the dynamic manufacturing problem, the production decision results from the trade-off between marginal production costs, inventory holding costs, and costs on capital tied in the inventory. Production though inventories are available can be optimal if the manufacturing costs are strongly increasing in time as the production rate is subject to limited capacity.

• In the dynamic procurement problem, the trade-off between marginal procurement costs, inventory holding costs, and costs on capital tied in the inventory is responsible for the procurement decision. Additional procurement in presence of positive inventories can be optimal if the warehouse capacity is limited.

These optimality properties have been derived analytically and are exploited in solution algorithms to solve the trade-off. The stochastic models shed light on the in?uence of risk and competition aspects. The interface of operations and ?nance comes up when the restrictive assumptions of a perfect capital market are relaxed. The aspects of risk-aversion and a competitive sales markets in presence of a perfect capital market have been investigated.


• A risk-neutral ?rm does not bene?t from advance procurement.
• For a risk-averse ?rm optimizing a mean-variance criterion, a mixture

Dr. Jan Arnold completed his doctoral thesis under the supervision of Prof. Dr. Stefan Minner at the Chair of Business Administration and Logistics at the University of Mannheim. He works as a management consultant.