Are quantity flexibility contracts with discounts in the presence of spot market procurement relevant for the humanitarian supply chain? An exploration

Procurement of aid material such as vaccines by a humanitarian agency (HA) is often fraught with uncertainties. For example, an epidemic outbreak can increase the demand for materials (such as vaccines) in a very short period. Most of the HAs depend on external donations (funding) to procure necessary vaccines to meet this demand. Hence, it is financially infeasible and operationally inefficient for the HA to procure large quantities of aid material in anticipation of a demand spike during an epidemic outbreak. Thus, the procurement processes for aid materials such as vaccines need to be flexible enough to meet these demand fluctuations. HAs can achieve this flexibility by employing a procurement mechanism portfolio that includes upfront buying, capacity reservation, spot market purchase, etc. However, the challenge lies in identifying the optimal combination of multiple procurement mechanisms and how they can be utilized to coordinate the humanitarian supply chain. In this study, we explore the feasibility of quantity flexibility contracts along with discount incentives combined with spot market procurement in humanitarian supply chains for aid material procurement. We also derive the conditions under which the contract can achieve systemic coordination between the supplier and HA. Furthermore, we also illustrate that under optimal conditions, the procurement of aid material using multiple procurement mechanisms by HA can also reduce the humanitarian supply chain’s total cost.