Some ideas regarding reserving supplier capacity and selecting replenishment quantities in a project context

In this paper the authors consider the context of a major project whose execution takes several periods. Specifically they are interested in the procurement policy for a resource (material, commodity or engineered item) that is used througout the project. Two types of uncertainty are considered, namely (i) uncertainty in the requirements, period by period, and (ii) uncertainty in the capacity, period by period, of the supplier providing the resource. There is the possibility of paying a premium to reserve dedicated capacity that can vary from period to period. Hence, the first group of decision variables are the capacities to reserve, period by period. There is typically a long lead time involved so that all the capacities must be reserved prior to the first replenishment decision. The second class of decision variables encompasses the procurement quantities, period by period. These decisions can be made as the project progresses. The authors present some general approaches to dealing with this complex problem as well as some important insights.