Work

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

Year: 2015

Type: article

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.

Source: International Journal of Production Research

DOI: 10.1080/00207543.2014.999956

Author: Yasemin Merzifonluoglu

Institution: Middle East Technical University

Language: English

Topic: Supply Chain and Inventory Management

Subfield: Management Information Systems

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

Funder: European Commission

Award: Optimal Mechanisms to Match Supply and Demand in Contemporary Supply Chains