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 (SCI-Expanded) identifier identifier

  • Publication Type: Article / Article
  • Volume: 53 Issue: 22
  • Publication Date: 2015
  • Doi Number: 10.1080/00207543.2014.999956
  • Journal Name: INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH
  • Journal Indexes: Science Citation Index Expanded (SCI-EXPANDED), Scopus
  • Page Numbers: pp.6937-6961
  • Keywords: inventory control, supplier selection, conditional value-at-risk, newsvendor problem, VALUE-AT-RISK, NEWSVENDOR PROBLEM, INVENTORY MODELS, DISRUPTION RISKS, NEWSBOY PROBLEM, CHAIN GLITCHES, RANDOM YIELDS, UNCERTAINTY, MANAGEMENT, PORTFOLIO
  • Middle East Technical University Affiliated: Yes

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.