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


Merzifonluoglu Y.

INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH, vol.53, no.22, pp.6937-6961, 2015 (Journal Indexed in SCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 53 Issue: 22
  • Publication Date: 2015
  • Doi Number: 10.1080/00207543.2014.999956
  • Title of Journal : INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH
  • Page Numbers: pp.6937-6961

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.