Take-or-pay contracted assembly system with random demand

An assembler needs sets of components, each produced by a different supplier. To buy the components from the components suppliers and assemble the final product, the assembler must order before observing the actual demand. Under a take-or-pay contract given by the supplier, the assembler can procure the component directly or prepay for the option first and buy the component when demand observed. All parts are only purchased for the current demand season. The assembler faces a random demand and spot market exists for the components if necessary. The objective is to maximize the total expected profit. We present some structural results of optimal procurement decision and numerical results given.