Flexible Price Under The Contract Of Raw Material Purchasing Strategy And Risk Analysis

Nowadays, the market competition is more and more competitive. The price fluctuation of raw material is a very tough question either for raw materials suppliers or for the buying firms. For the raw material suppliers, they need to undertake the risk of reducing income caused by price declining. On the other hand, it needs to undertake the risk of costs increasing caused by price inflation for the downstream purchasing enterprises. In the supply chain procurement system that is composed of supplier and manufacturer, the volatile price of raw materials will bring the whole supply chain procurement system huge profits uncertainty undoubtedly. Therefore, it is necessary to design a price flexibility contract about raw material procurement. It will make the supplier and manufacturer both sides to undertake the risk of raw material price volatility together. And the ultimate goal is to make supply chain node enterprises achieve revenue sharing and win-win purpose. In general, the research on price flexibility contract about raw material procurement has the great significance for the research on supply chain contract and supply chain risk. It not only can replenish the content of supply chain contract theory and supply chain risk theory but also can offer supply chain enterprises decision-making guidance.This paper researched the situation detailed about a two-stage supply chain procurement system including a single supplier and a single manufacturer using price flexibility contract about raw material procurement. The decision process of supplier and manufacturer is a Stackelberg master-slave game process when using the price flexibility contract. The manufacturer makes the optimal order decision after supplier provided the price flexibility contract. This paper discussed the price flexibility contract about raw material procurement with the constant contract price and the price flexibility contract with the price upper limit and lower limit. According to the rules of contract, the purchasing price will rise in proportion when the market price goes up, and it will drop in proportion when the market price goes down. It usually needs to set the proportion or boundary of price floatation and drop. The paper researched the optimal order of manufacturers and the price flexibility coefficient by establishing the mathematical model of the price flexibility contract. It used the method of comparative static analyses to discuss the risk undertaking by supply chain node enterprise how to change along with the change trend of parameters in the price flexibility contract. This paper also discussed the supply chain node enterprises how to realize the purpose of revenue sharing and risk sharing by designing the price flexibility contract. The result of this paper is undoubtedly the important supplement of supply chain contracts and supply chain risk research fields.