The Impact of E-Auctions in Adjusting Procurement Strategies for Specialty Coffee
M. Laura Donnet
Universidad Austral - Facultad de Ciencias Empresariales
Thomas D. Jeitschko
Michigan State University - Department of Economics
Dave D. Weatherspoon
Michigan State University
November 24, 2009
Supply relationships and e-auctions are complementary procurement forms that specialty coffee roasters can utilize when designing a procurement strategy. We model the roasters’ optimal choices of procurement strategies using an extended newsvendor model. By comparing the optimal strategies in a benchmark case solely based on relationships to a case in which auctions can be utilized, we derive the impact of e-auctions on the procurement quantity and profit under conditions of demand uncertainty. The two stage model predicts that the adjustment of procurement using e-auctions is most beneficial under market circumstances of high demand variability and small firm size. We use industry data to illustrate the market conditions for specialty coffee and discuss the potential impact of e-auctions on procurement strategies for specialty coffee based on our model. The theoretical propositions in conjunction with current industry data suggest that e-auctions have great potential to become an integral part of and shape roasters’ procurement approaches in the specialty coffee market.
Number of Pages in PDF File: 33
Keywords: Procurement, E-Auctions, Differentiated Supply Chains, Specialty Coffees, Newsvendor Model
JEL Classification: D2, D44, L14, L22, Q1, Q13
Date posted: August 16, 2007 ; Last revised: August 3, 2014
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