Evaluating long-term import contracts with price commitments: a quantitative case study of a home design company

Long-term contracts that commit importers to fixed prices over multi-year periods expose firms to significant financial risk, particularly when future costs are dynamic and volatile. This study presents a novel, two-stage decision-support framework tailored to importer firms operating under such contracts. First, we develop a dynamic cost accounting system that captures all relevant import-related expenditures, including customs, freight, insurance, and currency fluctuations, often overlooked in traditional production-focused models. Second, we propose a nonlinear optimisation-based tool that integrates a firm’s historical data and the risk preferences of its decision-makers to assess whether proposed contracts should be accepted or rejected. The framework is applied to a case involving a leading Israeli importer of porcelain tiles and sanitary ware. Using actual transaction data, we show the proposed method significantly improves decision accuracy compared to the company’s traditional system. Additionally, the model’s performance is validated through large-scale computerised experiments involving simulated deals. Results show our model achieves at most a 2.8% gap in expected profit compared to the ideal benchmark and yields up to 9% better decision accuracy than standard methods. The framework is adaptable to other industries operating under price-commitment constraints and offers a practical, risk-aware approach to cost management and contract evaluation.