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Francis Ng








Francis Ng

Ph.D. Research Student

Center for Integrated Facility Engineering

Department of Civil and Environmental Engineering

Stanford University


Ph.D. Candidate, Management Science and Engineering, Stanford University

M.S., Engineering Economic Systems and Operations Research, Stanford University (1998)

B.S., Industrial Engineering and Operations Research, U.C. Berkeley (1996)


Real Options in Material Procurement Contracts

This research examines how real options could be constructed in material procurement contracts in the construction industry. The optimal policy of how (if and when) to exercise the real options can then be turned into supply chain decision support software. Real options can provide buyers with valuable operating flexibility to minimize inventory cost and price volatility. It can also help suppliers diversify their price risks and smooth out production schedule. Therefore, this concept has a large potential in the construction industry to increase profit margin for many parties along the supply chain by minimizing wastes and increasing efficiency.

We identify three major problems that would have to be overcome:

Identify the types of materials and the types of real options to embed into the procurement contracts of these materials.

Reduce the number of dimensions in sequential decision problems to make calculation feasible.

Propose incentives for buyers and sellers to change the current way of doing business.

Contact Information

Stanford University
Stanford, California 94305-4020

Phone: (650) 725-8970
Fax: (650) 723-4806

Email: franthng@stanford.edu