Under price uncertainty, the decision on how long a supply contract for a certain commodity should be, is an important question a decision maker has to address. The length of supply contract will affect both the financial aspect as well as the risks. This research will discuss about the selection of 3 (three) procurement strategies namely long-term procurement strategy, short-term procurement strategy, and mixed strategy by considering uncertainty factors such as commodity price, supplier delivery time and quality in which the three factors are considered to be uncertain. We compare the benefits, costs and risks associated with each strategy. We use the Monte Carlo Simulation method to represent the level of uncertainty of all variables. Cost-Benefit Analysis is used to calculate the economic aspects while the procurement supply risk analysis is used to determine the risk associated with each strategy. The results show that the mixed strategy of 24-month and 6-month outperformed other strategies.

Keywords

Procurement, Procurement Strategy, Monte Carlo Simulation, Cost-Benefit Analysis, Risk Analysis