Ordering policies for a dual sourcing supply chain with disruption risks

Purpose: The main purpose of this article is to explore the trade-off between ordering policies and disruption risks in a dual-sourcing network under specific (or not) service level constraints, assuming that both supply channels are susceptible to disruption risks. Design/methodology/approach: Stochastic newsvendor models are presented under both the unconstrained and fill rate constraint cases. The models can be applicable for different types of disruptions related among others to the supply of raw materials, the production process, and the distribution system, as well as security breaches and natural disasters. Findings: Through the model, we obtain some important managerial insights and evaluate the value of contingency strategies in managing uncertain supply chains. Originality/value: This paper attempts to combine explicitly disruption management with risk aversion issues for a two-stage supply chain with two unreliable suppliers.Peer Reviewe

Essays on supply risk in global operations

The prevalence of globalization has created significant operational risks in firms’ supply networks. It is, therefore, essential for firms to adopt effective risk management strategies to mitigate supply risks. Of the many operational challenges that globalization poses, this research focuses on the operational risk associated with emerging economies. These operational risks include, for example, leadtime risk, capacity risk, quality risk, intellectual property risk, political risk, regulatory risk, exchange risk, and so on. In this dissertation, we consider three of these risks, namely, leadtime risk, capacity risk, and regulatory trade barrier risk. In the first chapter, we examine the supplier random leadtime issue. In deciding when and how much to order, firms must consider lead time risk and demand risk, i.e., the accuracy of their demand forecast. We characterize a firm’s optimal timing and quantity policy. We prove that a firm’s optimal procurement time is independent of the demand forecast but that the optimal procurement quantity is not. In the second chapter, we examine the supplier random capacity issue. We relax the assumption that supplier reliability is exogenous and consider a case where a firm may have the opportunity to improve a supplier’s reliability. We characterize a firm’s optimal procurement policy for both its diversification strategy and its process improvement strategy. We prove that a firm’s procurement strategy is significantly influenced by the opportunity for process improvement. In the third chapter, we examine a firm’s sourcing strategy under regulatory trade barriers. We contrast four procurement strategies in their effectiveness to mitigate supply risk due to trade barriers

Essays on Global Sourcing under Uncertainty

In this dissertation, we study the sourcing policies of global corporations and determine the key drivers of the procurement decisions under different types of uncertainties. The first essay explores the impact of exchange-rate and demand uncertainty on sourcing decisions of a multinational firm which engages in global sourcing through capacity reservation contracts. The focus of this essay is cost, which is known to be the main driver of global sourcing practices. We investigate the impact of cost uncertainty caused by exchange-rate fluctuations on procurement decisions, and identify the conditions that result in single and dual sourcing policies. Our analysis indicates that although cost is an order qualifier when exchange rate is considered deterministic, lower expected sourcing cost is neither necessary nor sufficient to source from a supplier under exchange-rate uncertainty. The second essay examines sourcing and pricing decisions of an agricultural processor encountering yield uncertainty of the agricultural input required for its offered specialty product and the price uncertainty of the competing commercial product. We show that uncertainty gives rise to a conservative sourcing policy which would never emerge in a deterministic setting. While both studies highlight the significant impact of uncertainty on the business decisions and performance, they demonstrate that the effect of uncertainty may take opposite directions contingent upon the business environment and the type of uncertainty. The operational environment studied in the first essay, provides an opportunity for the firm to benefit from exchange-rate fluctuations, whereas the variation in supply and the market price of the competing product are shown to diminish the firm’s expected profit in the agricultural setting studied in the second essay. Demonstrating the opposing behavior under different forms of uncertainty, this study recommends managers to think deeply about the impact of uncertainty on their businesses. It also provides various forms of prescriptions to mitigate risk and operate effectively under each uncertainty

Analysis of dual sourcing strategies under supply disruptions

We study a dual-sourcing problem of a firm in the face of supply disruptions from two suppliers: local and overseas. Under four different scenarios of disruption source and information availability, we characterize the optimal dynamic policy that simultaneously determines sourcing decisions to minimize the expected total discounted cost. Different from the previous dual-sourcing models without information availability in the literature, we develop a two-dimensional stochastic dynamic programming model to explicitly address this issue. Further, we analyze the impact of disruption source and information availability on cost performance. We find that (i) a supply disruption at the local source may cause a more remarkable deterioration of cost efficiency than a supply disruption at the overseas source; (ii) the information about the local source is more valuable than that about the overseas source; (iii) when a firm orders from both sources, the disruption information can achieve a significant cost saving. These findings contribute to the theory of strategic sourcing by demonstrating the value of information available at different sources. Moreover, they can also be used as a valuable guideline for managers to select an appropriate sourcing strategy in business practices. (C) 2015 Elsevier B.V. All rights reserved

Supply Management in Multiproduct Firms with Fixed Proportions Technology

This paper studies the supply management of a primary input, where this input gives rise to multiple products in fixed proportions. My objective is twofold. First, I study fixed proportions technology under demand uncertainty in comparison with the flexible and dedicated technologies. I show that fixed proportions technology has a cost-pooling value over dedicated technology, which is larger than the capacity-pooling value of flexible technology over dedicated technology. I identify the critical role that demand correlation plays with the fixed proportions technology: in contrast to the capacity-pooling value, which decreases in demand correlation, the cost-pooling value increases in demand correlation. Second, focusing on the fixed proportions technology, I study supply management in the presence of contract and spot markets. I investigate how the optimal supply management strategy should respond to changing market uncertainties, and the differences in this response based on the contract type. I find that when the exercise price of the contract is high, a higher contract market dependence is the best response to the increasing demand correlation or spot price variability. However, a lower contract market dependence is the best response to the same when the exercise price is low. Managerially, these results are important because they imply that the supply management strategy adopted as a response to a change in the business environment should differ depending on the contract type. My results have implications about the new product strategy and the procurement contract choice of the processors in the agricultural industries. This paper was accepted by Yossi Aviv, operations management. </jats:p

Dynamic Pricing and Inventory Management with Dual Suppliers of Different Lead Times and Disruption Risks

Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/109985/1/poms12221-sup-0001-OnlineSupplement.pdfhttp://deepblue.lib.umich.edu/bitstream/2027.42/109985/2/poms12221.pd

Essays in Operations Management: Applications in Health Care and the Operations-Finance Interface

I present three essays pertaining to the management of supply chain risks in this dissertation. The first essay and the second essay analyze supply chain risks from a financial perspective, while the third essay analyzes supply chain risk with the objective of maximizing societal benefits in health care. In my first essay, I consider a firm facing inventory decisions under the influence of the financial market. With stochastic analytical methods, the purpose of this essay is to examine the optimal inventory decisions under a variety of conditions. I have identified the relevant factors impacting such decisions and the firm's value. Moreover, I have studied the benefits brought by efforts to improve the random capacity of the firm. I conclude that the financial market can significantly impact both a firm's inventory decisions and process improvement incentives. In my second essay, I model a stylized supply chain managed by a base-stock inventory policy where the decision maker holds concerns about the down-side risk of the supply chain cost. With stochastic analytical methods, the purpose of this essay is to obtain solutions of the problem of minimizing Conditional Value-at-Risk under various supply chain scenarios. I find that various supply chain parameters may influence the optimal solution and the optimality of a stock-less operation. I conclude that operating characteristics of a supply chain can shape its inventory policy when down-side risks are taken into account. For my third essay, the purpose of this essay is to investigate the operational decisions of a medical center specializing in bone marrow transplants. Using the queuing system method, I formulate the medical center as a queuing system with random patient arrivals and departures. I find optimal decisions and efficient frontiers regarding waiting room size and the number of transplant rooms with the objective of maximizing patient health benefits. I conclude that the design of a health care delivery system is crucial for health care institutions to sustain and improve their social impacts. In each of the three essays, I use analytical and numerical approaches to optimize managers' decisions with respect to various sources of risk