Optimal Supply Planning for Commercial Seeds

40 Pages Posted: 28 Feb 2017

See all articles by Utku Serhatli

Utku Serhatli

INSEAD

Andre Calmon

INSEAD - Technology and Operations Management

Enver Yucesan

INSEAD - Technology and Operations Management

Date Written: February 28, 2017

Abstract

We analyze the optimal production and inventory decisions of a global corn seed manufacturer. Due to naturally long supply lead times and short selling seasons in agriculture, we propose a newsvendor model, which includes not only supply and demand uncertainty, but also product returns and perishability. First, we present the general model for a single variety and derive structural results. Second, we characterize the optimal production and inventory management in multi-period case model for a single end product. Third, we solve the single-product, single-period case and analyze via Monte Carlo simulations using market data. Long lead supply lead time also causes demand forecasts to be notoriously unreliable. Thus, we model and solve various special cases, including scenarios with salvaging and postponement, as well as comparing across these different settings to assess the value of operational agility. Our analysis shows that while salvaging protects the firm against yield uncertainty, postponement is an effective defense against demand uncertainty.

Keywords: Agricultural Supply Chains, Sustainable Operations, Seed Manufacturing, Stochastic Optimization

Suggested Citation

Serhatli, Utku and Calmon, Andre and Yucesan, Enver, Optimal Supply Planning for Commercial Seeds (February 28, 2017). INSEAD Working Paper No. 2017/22/TOM, Available at SSRN: https://ssrn.com/abstract=2925095 or http://dx.doi.org/10.2139/ssrn.2925095

Utku Serhatli

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

Andre Calmon (Contact Author)

INSEAD - Technology and Operations Management ( email )

Boulevard de Constance
77 305 Fontainebleau Cedex
France

Enver Yucesan

INSEAD - Technology and Operations Management ( email )

Boulevard de Constance
77 305 Fontainebleau Cedex
France
(33) (0)1 60 72 40 04 (Phone)
(33) (0)1 60 72 40 49 (Fax)

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