Abstract: Uncertainties in disasters and emergency material demands make the government authorities and rescue agencies prefer the procurement contracts with flexibilities. However, flexible procurement increases the risks faced by the agreement enterprises, and then requires them to make reasonable emergency material production and reserve plans. This is because, compared with the production capacity reserve, the response speed of pre-production materials (physical reserves) is faster and the production cost is lower. However, production capacity reserve can reduce the agreement enterprises’ risk of overstocking and value loss since the government authority may not execute or partially execute the procurement contract. In this regard, most of the existing studies balance the advantages and disadvantages of the physical reserves and production capacity reserves. However, they commonly ignore a premise. That is, sufficient inventory of the raw materials that can be rapidly put into production is necessary. If the government authority dose not execute or partially executes the procurement contract, the raw material reserve will lose value as well.

Key words: emergency material production; raw material reserve; commercial inventory; option contract