Value of information through options contract under disruption risk

Kole H., BAKAL İ. S.

COMPUTERS & INDUSTRIAL ENGINEERING, cilt.103, ss.85-97, 2017 (SCI-Expanded) identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 103
  • Basım Tarihi: 2017
  • Doi Numarası: 10.1016/j.cie.2016.11.006
  • Dergi Adı: COMPUTERS & INDUSTRIAL ENGINEERING
  • Derginin Tarandığı İndeksler: Science Citation Index Expanded (SCI-EXPANDED), Scopus
  • Sayfa Sayıları: ss.85-97
  • Anahtar Kelimeler: Supply disruption, Dual sourcing, Options contract, Value of information, SUPPLY DISRUPTIONS, ASYMMETRIC INFORMATION, RESERVATION CONTRACTS, INVENTORY MANAGEMENT, BACKUP SUPPLIERS, RANDOM YIELDS, DIVERSIFICATION, UNCERTAINTY, CAPACITY, SYSTEM
  • Orta Doğu Teknik Üniversitesi Adresli: Evet

Özet

In this study, we consider the replenishment strategy of a buyer with two suppliers. Since its regular supplier is prone to disruptions, the buyer utilizes an options contract with a more expensive but perfectly reliable supply option. We introduce three models depending on the level of information available when the options from the reliable supplier are exercised: (i) Full information (both supply and demand information), (ii) partial information (only supply information), and (iii) no information. We derive the optimal replenishment strategy of the buyer in each of these models and characterize the conditions under which the reliable supplier is utilized. Through both analytical and numerical studies, we investigate the effectiveness of an options contract under different levels of information. (C) 2016 Elsevier Ltd. All rights reserved.