Procurement portfolio management for resilient supply chains: Value of information for risk averse decision making

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Abstract

In this study, we investigate the replenishment decisions for firms that rely on multiple sources of supplies, including regular forward contracts, option contracts, and the spot market. Our research aims to tackle the challenges arising due to supplier disruptions and the volatility of spot market prices that are correlated with these disruptions. We develop and solve multi-stage stochastic programming models that incorporate demand and supplier disruption information updates, while considering both risk neutral and risk averse (CVaR) objectives. These models assist organizations with varying risk attitudes in achieving maximum performance by optimally selecting a procurement portfolio based on the availability and quality of updated information. Through analytical solutions and extensive numerical studies, our findings offer novel insights to organizations and policymakers, empowering them to enhance their supply chain resilience during critical supply disruption situations. Therefore, this research has broader implications and aligns with the multiple sustainability objectives outlined in the Sustainable Development Goals (SDGs).
Original languageEnglish
JournalAnnals of Operations Research
DOIs
Publication statusE-pub ahead of print - Mar 2024

Keywords

  • Procurement management
  • Value of Information
  • Risk
  • Supply disruption
  • Spot markets
  • Option contracts

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