Risk Management for the Optimal Order Quantity by Risk-Averse Suppliers of Food Raw Materials

Tyrone T Lin,Shu-Yen Hsu

doi:10.3390/ijfs6040096

Abstract

In uncertain food safety environments, the suppliers of food raw materials (FRM) are facing crucial food safety issues. Therefore, this article aims to probe the risk-averse attitude of FRM suppliers in the face changing marketing environments, in order to establish a decision-making theory as a standard reference for optimization methods to satisfy the maximum expected profit and utility function for the optimal order quantity of FRM suppliers’ decision-making. We assume that urgent orders are permitted when products are out of stock, and surplus products will be sold at discounted prices, as based on the food safety circumstances and the differences of market acceptance (optimistic/normal/pessimistic), in order to affect the procurement costs and selling prices. The results of sensitivity analysis for the maximum expected profit show that the probability of imported FRM having no food safety problems when the external environment has no food safety problems is the most important parameter, with the importers fulfilling their responsibility for FRM source quality control. Meanwhile, a responsible attitude toward handling a crisis will reduce losses, transform the crisis into an opportunity, and win the trust of consumers, thereby, fostering corporate sustainability. Sensitivity analysis identifies the significant parameters that influence suppliers’ maximum utility function, and provides a reference by which food-related companies may formulate sustainable business policies.

Highlights

In the past few years, the food industry has grown steadily in the U.S.A, Europe, Southeast Asian countries, China, and Japan
Some of the internal food safety problems occur from the food raw materials (FRM) suppliers that are unable to manage the quality of imported FRM, which deteriorate during the process of transportation, storage, or human negligence in reproduction
This paper focused on the construction of the optimal order quantity model to obtain the highest revenue via the introduction of risk aversion in uncertain food safety environments; when the suppliers of FRM are faced with (1) food safety problems due to the market environment; (2) food safety problems due to themselves under the three sales conditions of optimistic, pessimistic, and normal markets, when it is allowed to purchase urgent orders when the goods are out of stock, and when the remaining stocks are sold at a discount

Summary

Introduction

In the past few years, the food industry has grown steadily in the U.S.A, Europe, Southeast Asian countries, China, and Japan. In Taiwan, the gross domestic product (GDP) of the food industry was $21.2 billion, of which 6.73 billion were imported products that shared 26.4% of the processed food market in 2014. It is estimated that the growth rate will reach 13.3% in the processed food industry from 2014 to 2019 (Li and Wang 2015). The food industry is moving toward healthful, innovative, personalized, and more food safety controlled markets, which have made food safety examination-related businesses grow rapidly (Li and Wang 2015). An overview of the global food industry aims to promote food labeling, self-inspection, and food traceability, in order to enhance the quality of products, improve the food consumption market and strengthen the management of supply chains for manufacturers (Li and Wang 2015)

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