Impact of risk aversion and backup supplier on sourcing decisions of a firm

Yasemin Merzifonluoglu*

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

Abstract

This study focuses on a newsvendor problem with multiple suppliers, considering the risk-neutral and risk-averse objectives in a mean-risk optimisation model. The firm first decides order quantities from the primary (unreliable) suppliers and reserve capacity from the secondary (reliable) backup supplier. After the state of its primary suppliers and customer demand is revealed, the firm purchases from the available suppliers and uses the backup supplier subject to the reserved capacity. For the special case of normal distribution and risk-neutral objective, optimality properties were developed. A comprehensive numerical study examines the sensitivity of the sourcing strategies of firms to risk, shortage cost, demand uncertainty, salvage value, and capacity reserve options; various managerial insights are offered based on this.

Original languageEnglish
Pages (from-to)6937-6961
JournalInternational Journal of Production Research
Volume53
Issue number22
DOIs
Publication statusPublished - 17 Nov 2015
Externally publishedYes

Keywords

  • inventory control
  • supplier selection
  • conditional value-at-risk
  • newsvendor problem
  • VALUE-AT-RISK
  • NEWSVENDOR PROBLEM
  • INVENTORY MODELS
  • DISRUPTION RISKS
  • NEWSBOY PROBLEM
  • CHAIN GLITCHES
  • RANDOM YIELDS
  • UNCERTAINTY
  • MANAGEMENT
  • PORTFOLIO

Cite this

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title = "Impact of risk aversion and backup supplier on sourcing decisions of a firm",
abstract = "This study focuses on a newsvendor problem with multiple suppliers, considering the risk-neutral and risk-averse objectives in a mean-risk optimisation model. The firm first decides order quantities from the primary (unreliable) suppliers and reserve capacity from the secondary (reliable) backup supplier. After the state of its primary suppliers and customer demand is revealed, the firm purchases from the available suppliers and uses the backup supplier subject to the reserved capacity. For the special case of normal distribution and risk-neutral objective, optimality properties were developed. A comprehensive numerical study examines the sensitivity of the sourcing strategies of firms to risk, shortage cost, demand uncertainty, salvage value, and capacity reserve options; various managerial insights are offered based on this.",
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Impact of risk aversion and backup supplier on sourcing decisions of a firm. / Merzifonluoglu, Yasemin.

In: International Journal of Production Research, Vol. 53, No. 22, 17.11.2015, p. 6937-6961.

Research output: Contribution to journalArticleScientificpeer-review

TY - JOUR

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N2 - This study focuses on a newsvendor problem with multiple suppliers, considering the risk-neutral and risk-averse objectives in a mean-risk optimisation model. The firm first decides order quantities from the primary (unreliable) suppliers and reserve capacity from the secondary (reliable) backup supplier. After the state of its primary suppliers and customer demand is revealed, the firm purchases from the available suppliers and uses the backup supplier subject to the reserved capacity. For the special case of normal distribution and risk-neutral objective, optimality properties were developed. A comprehensive numerical study examines the sensitivity of the sourcing strategies of firms to risk, shortage cost, demand uncertainty, salvage value, and capacity reserve options; various managerial insights are offered based on this.

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KW - inventory control

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KW - NEWSVENDOR PROBLEM

KW - INVENTORY MODELS

KW - DISRUPTION RISKS

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KW - RANDOM YIELDS

KW - UNCERTAINTY

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KW - PORTFOLIO

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