Supply Management in Multi-Product Firms with Fixed Proportions Technology
The main objective of this paper is to develop a theoretical basis for understanding the tradeoffs facing a commodity processor in the choice of alternative arrangements for sourcing input, when that input is used to produce several final products in fixed proportions and the processor acts as a wholesaler into these product markets with uncertainties in place. The fixed proportions technology feature is relevant for several agricultural commodity markets. For example, cocoa beans are used to produce cocoa powder and butter; fed-cattle is used to produce boxed beef and ground beef. While our analysis focuses on supply chains that have a common commodity input from which multiple non-commodity outputs are produced (such as cocoa, sugar and fed-cattle); our results are also applicable to the case in which some of the outputs are commodities (such as soybean, corn and seeds) but the processor only uses wholesale markets for these outputs.