Contract Types

In this thesis, we study capacity planning in a general supply chain that contains multiple products, processes, and resources. We consider situations with demand uncertainty, outsourcing contracts, and option contracts. We develop efficient and practical algorithms to address the following three questions: which suppliers should the manufacturer select, which types of contracts should it use, and how much ca-pacity should it reserve. Through the model and algorithms, we study the properties of, and draw managerial insights about the optimal capacity planning strategy. First, we propose a model to study the single period capacity planning problem. We provide closed-form representations of the optimal capacity planning strategy for two special supply chain structures. We then develop a stochastic linear programming algorithm to solve the general single period problem and show that our algorithm out-performs the alternative algorithms by means of an empirical study. With the model and algorithm, we then study the effects of demand uncertainty, prices, common pro