IE-OPIM Joint Seminar
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IE-OPIM Joint Seminar 24 December 2014 at 13.40 at FENS G035

Supply Chain Analysis of Contract Farming

by

Ahmet Serdar Şimşek

(This is joint work with Awi Federgruen and Upmanu Lall from Columbia University)

Abstract: Contract farming is an emerging practice in developing countries. It generates necessary guarantees to sustain the continued operations of vulnerable farmers while enabling the manufacturers to manage the aggregate supply and price risk. We consider a single manufacturer who owns several manufacturing plants, each with a random demand for the crop. The manufacturer selects a set of farmers to offer a menu of contracts. Each “selected” farmer chooses a contract from this menu in advance of the growing season. After the growing season, under known demands and supplies, the manufacturer minimizes the distribution costs from the selected farmers to the production facilities. We formulate this problem as a Stackelberg game, where the manufacturer is the leader and the farmers are followers. The manufacturer's problem is a two-stage stochastic planning program for which we develop two solution approaches. We have applied our model to problem instances anchored on data from a large manufacturer of potato chips contracting with thousands of small farmers in India. We report on the performance of the solution methods compared to a lower bound based on the Lagrangean dual of the problem and show that the optimality gap is below 1%, for problem instances with 1,000 potential farmers.

 

Bio: A. Serdar Simsek is an Instructor/Researcher in the School of Operations Research and Information Engineering of Cornell University since August 2013. He received his B.S. degree in Industrial Engineering from Bilkent University in 2008, and his Ph.D. degree in Decision, Risk, and Operations from Columbia University, Graduate School of Business in 2013. His research interests lie in behavioral modeling and empirical methods applied to various OR/OM problems, including pricing and revenue management, business analytics, sustainable operations, and supply chain management. He is currently teaching Revenue Management and Design of Manufacturing Systems courses at Cornell University.