Decision Support for Negotiations of Flexibility Contracts

Supply contracts are a medium for coordinating materials and information flows in supply chains aiming at reducing uncertainties, order variances, delivery lead times, and inventory risks with increased fill rates. Practitioners were always up-front involved in designing and negotiating clauses of so called quantity flexibility contracts. Meanwhile researchers have proved the advantage of such contracts with the limitation of restricted feasibility on operational level, mainly due to a lack of understanding the possible and needed reconciliations of forecast updating and their overall short-term consequences. This paper presents a model supporting contract design and operational decision making regarding cost optimal order bundling strategies on supplier´s side in a stochastic or quasi-deterministic make-to-order environment. We hypothesize that firm, agreed upon flexibilities and a tangible, efficient display of market risks will enable both parties gaining higher levels of transparency regarding their order balance as well as cost structure and hence encourage user´s acceptance.