Risky Supply Research Articles

Supplier selection problem for a retailer under random yield

Using a simple one-period model of a supply chain with one retailer and multiple risky suppliers, this paper studies questions of supplier selection and ordering policies among firms. A supplier is said to be unreliable when the quantity of goods effectively delivered by that supplier cannot correspond exactly to the order quantity. The question facing the retailer is to determine how many suppliers to contract and how much to order from each contracted supplier. We not only present the structural properties of the optimal ordering policy, but also analyze the effect of random yield and fixed ordering cost on the optimal policy and the retailer’s profit.

Product complexity and supply chain design

To assemble a product, each and every part is required. Hence, the more parts in the product, the greater the risk of disruption. Compared with retailers or assemblers of simple products, manufacturers of complex products are much more sensitive to supply chain delays. This heightened vulnerability to supply chain disruptions should lead complex product assemblers to design less risky supply chains. Supply chain design should depend on the complexity of the product assembled or manufactured. This paper models how product complexity drives the likelihood of disruption for given component supply chain reliabilities. The paper provides insights for supply chain design that comprehends the impact of product complexity.

Management Insights

Management Insights

THE EFFICIENT USE OF MULTIPLE SOURCES OF A NONRENEWABLE RESOURCE UNDER SUPPLY COST UNCERTAINTY*

Whereas in a deterministic world leaving a high-cost source of a nonrenewable resource untouched as long as a less costly source is available is always efficient, this may not be the case in a stochastic world. Conditions are derived under which it can be efficient to use a risky supply source in order to conserve a cheaper nonrisky source, or to use a costly nonrisky source while a less costly risky source is still available. A supply embargo can be interpreted as a limiting case; the nonrisky source can be reinterpreted as an artificial stockpile.

Manufacturers' Competition and Subsidies to Suppliers

Dealing with risky suppliers is a part of everyday business for manufacturers. For example, the domestic automotive supply industry has faced numerous hardships as some of its largest firms have flirted with bankruptcy, or have been subsumed by Chap 11 over the past few years. Nearly 30% of the pre-existing North American automotive supply base had filed for bankruptcy by the end of 2008. Half are predicted to file for bankruptcy before the end of 2010.

Inventory and pricing decisions in a single-period problem involving risky supply

We explore an extension of the single-period (newsboy) inventory problem when supply is uncertain. We look into the negotiations between a newsvendor (retailer) and a manufacturer when there is competition from a second supplier. There is a chance that the second supplier will not be able to deliver the product. The retailer can maximize his expected profit by optimally allocating his order between the two suppliers. The retailer's ordering problem is analyzed in conjunction with the manufacturer's related pricing problem. The effects of demand and supply uncertainties on the optimal decisions of the parties are explored using numerical examples. We also explore extension of the retailer's problem to the cases of order cancellation, price-dependent demand, and demand-dependent supply availability.

Vulnerable options in supply chains: Effects of supplier competition

AbstractConcerned with the risk of supplier default, a firm may choose to diversify its orders among multiple suppliers. Furthermore, the discrepancy in production lead‐times among suppliers furnishes a firm with a valuable option to defer ordering decisions until uncertainty has been partially resolved. The suppliers also have an option: to defer their pricing decisions. Using a single‐period, multi‐stage model of a two‐echelon supply chain with competing risky suppliers and a single manufacturer, this paper investigates how the supplier default risk and default co‐dependence affect manufacturer procurement and production decisions, supplier pricing decisions, firms profits, and the deferment option value and how the introduction of the deferment option alters supplier competition. © 2006 Wiley Periodicals, Inc. Naval Research Logistics 2006

Competition and Diversification Effects in Supply Chains with Supplier Default Risk

We study the effects of disruption risk in a supply chain where one retailer deals with competing risky suppliers who may default during their production lead-times. The suppliers, who compete for business with the retailer by establishing wholesale prices, are leaders in a Stackelberg game with the retailer. The retailer, facing uncertain future demand, chooses order quantities while weighing the benefits of procuring from the cheapest supplier against the advantages of order diversification. For the model with two suppliers we show that low supplier default correlations dampens competition among the suppliers, increasing the equilibrium wholesale prices. Therefore, the retailer prefers suppliers with highly correlated default events, despite the loss of diversification benefits. In contrast, the suppliers and the channel prefer defaults that are negatively correlated. However, as the number of suppliers increases our model predicts that the retailer may be able to take advantage of both competition and diversification.

Competition and Diversification Effects in Supply Chains with Supplier Default Risk

We study the effects of disruption risk in a supply chain where one retailer deals with competing risky suppliers who may default during their production lead times. The suppliers, who compete for business with the retailer by setting wholesale prices, are leaders in a Stackelberg game with the retailer. The retailer, facing uncertain future demand, chooses order quantities while weighing the benefits of procuring from the cheapest supplier against the advantages of order diversification. For the model with two suppliers, we show that low supplier default correlations dampen competition among the suppliers, increasing the equilibrium wholesale prices. Therefore the retailer prefers suppliers with highly correlated default events, despite the loss of diversification benefits. In contrast, the suppliers and the channel prefer defaults that are negatively correlated. However, as the number of suppliers increases, our model predicts that the retailer may be able to take advantage of both competition and diversification.

Risk‐taking propensity in supplier choice: Differences by sex and decision frame in a simulated organizational buying context

Past research concerning decision framing has found that buyer's choices tend to be risk averse for decisions framed as a gain and risk seeking for choices framed as a loss. Attribution theory suggests that women may be less likely to take risk than men when faced with similar decision-making problems. The present study sought to determine whether there would be differences between men and women with respect to their supplier choices based on how the purchasing decision was framed. Two experiments were conducted: one using a price-based purchasing scenario and the other using a price-based and a quality-based purchasing scenario. For the price-based scenario women tended to make more risky supplier choices than men when the purchasing decision was framed as a loss, and less risky supplier choices than men when the purchasing decision was framed as a gain. No differences between the sexes were found for the quality-based scenario. © 1999 John Wiley & Sons, Inc.

Risk-taking propensity in supplier choice: Differences by sex and decision frame in a simulated organizational buying context

Past research concerning decision framing has found that buyer's choices tend to be risk averse for decisions framed as a gain and risk seeking for choices framed as a loss. Attribution theory suggests that women may be less likely to take risk than men when faced with similar decision-making problems. The present study sought to determine whether there would be differences between men and women with respect to their supplier choices based on how the purchasing decision was framed. Two experiments were conducted: one using a price-based purchasing scenario and the other using a price-based and a quality-based purchasing scenario. For the price-based scenario women tended to make more risky supplier choices than men when the purchasing decision was framed as a loss, and less risky supplier choices than men when the purchasing decision was framed as a gain. No differences between the sexes were found for the quality-based scenario. © 1999 John Wiley & Sons, Inc.