N-period contracts with ordering constraints and total minimum commitments: Optimal and heuristic solutions

We consider long-term supply contracts with commitments and purchasing constraints. Under a commitment, the buyer agrees that the quantities purchased over the length of the contract will exceed a pre-specified amount. Purchasing constraints restrict the size of the quantity purchased each period. We present the optimal purchasing policy for an N-period contract, and a more readily implementable heuristic policy. By computing the expected profits of following such a policy, the user can easily choose between contracts with different commitments, constraints, and prices. We present computational results demonstrating this procedure.