Selection of Wood Supply Contracts to Reduce Cost in the Presence of Risks in Procurement Planning

Les activités d'achat dans l'industrie des pâtes et papiers représentent une part importante du coût global de la chaîne d'approvisionnement. Les décideurs prévoient l'approvisionnement en bois requis jusqu'à un an à l'avance afin de garantir le volume d'approvisionnement pour le processus de production en continu dans leur usine. Des contrats réguliers, flexibles et d'options avec des fournisseurs de différents groupes sont disponibles. Les fournisseurs sont regroupés en fonction de caractéristiques communes, telles que la propriété des terres forestières. Cependant, lors de l'exécution du plan, des risques affectent les opérations d'approvisionnement. Si les risques ne sont pas intégrés dans le processus de planification des achats, l'atténuation de leur impact sera generalement coûteuse et compliquée. Des contrats ad hoc coûteux supplémentaires pourraient être nécessaires pour compenser le manque de livraisons. Pour aborder ce problème dans cette thèse, dans un premier projet, un modèle mathématique déterministe des opérations d'approvisionnement est développé. L'objectif du modèle est de proposer un plan d'approvisionnement annuel pour minimiser le coût total des opérations relatives. Les opérations sont soumises à des contraintes telles qu’une proportion minimale de l'offre par chaque groupe de fournisseurs, des niveaux cibles des stocks, de la satisfaction de la demande, la capacité par la cour à bois et la capacité du procédé de mise en copeaux. Les décisions sont liées à la sélection des contrats d'approvisionnement, à l'ouverture de cour à bois et aux flux du bois. Dans un deuxième projet, une évaluation du plan d'approvisionnement à partir du modèle déterministe du premier projet est effectuée en utilisant une approche de simulation Monte Carlo. Trois stratégies contractuelles différentes sont comparées : fixes, flexibles et une combinaison des deux types des contrats. L'approche de simulation de ce projet évalue la performance du plan par la valeur attendue et la variabilité du coût total, lorsque le plan est exécuté pendant l'horizon de planification. Dans un troisième projet, une approche de programmation stochastique en deux étapes est utilisée pour fournir un plan d'approvisionnement fiable. L'objectif du modèle est de minimiser le coût prévu du plan d'approvisionnement en présence de différents scénarios générés en fonction des risques. Les décisions lors de la première étape sont la sélection des contrats dans la première période et l'ouverture des cours à bois. Les décisions de la deuxième étape concernent la sélection des contrats commençant après la première période, les flux, l'inventaire et la production du procédé de la mise en copeaux. iii L'étude de cas utilisée dans cette thèse est inspirée par Domtar, une entreprise des pâtes et papiers située au Québec, Canada. Les résultats des trois projets de cette thèse aident les décideurs à réduire les contraintes humaines liées à la planification complexe des achats. Les modèles mathématiques développés fournissent une base pour l'évaluation de la stratégie d'approvisionnement sélectionnée. Cette tâche est presque impossible avec les approches actuelles de l'entreprise, car les évaluations nécessitent la formulation de risques d'approvisionnement. L'approche de programmation stochastique montre de meilleurs résultats financiers par rapport à la planification déterministe, avec une faible variabilité dans l'atténuation de l'impact des risques.Procurement activities in the pulp and paper industry account for an important part of the overall supply chain cost. Procurement decision-makers plan for the required wood supply up to one year in advance to guarantee the supply volume for the continuous production process at their mill. Regular, flexible and option contracts with suppliers in different groups are available. Suppliers are grouped based on common characteristics such as forestland ownership. However, during the execution of the plan, sourcing risks affect procurement operations. If risks are not integrated into the procurement planning process, mitigating their impact is likely to be expensive and complicated. Additional expensive ad hoc contracts might be required to compensate for the lack of deliveries. To tackle this problem, the first project of this thesis demonstrates the development of a deterministic mathematical model of procurement operations. The objective of the model is to propose an annual procurement plan to minimize the total cost of procurement operations. The operations are subject to constraints such as the minimum share of supply for each group of suppliers, inventory target levels, demand, woodyard capacity, and chipping process capacity. The decisions are related to the selection of sourcing contracts, woodyards opening, and wood supply flow. In the second project, an evaluation of the procurement plan from the deterministic model from project one is performed by using a Monte Carlo simulation approach. Three different strategies are compared as fixed, flexible, and a mix of both contracts. The simulation approach in this project evaluates the performance of the plan by the expected value and variability of the total cost when the plan is executed during the planning horizon. In the third project, a two-stage stochastic programming approach is used to provide a reliable procurement plan. The objective of the model is to minimize the expected cost of the procurement plan in the presence of different scenarios generated based on sourcing risks. First-stage decisions are the selection of contracts in the first period and the opening of woodyards. Second-stage decisions concern the selection of contracts starting after the first period, flow, inventory, and chipping process production. The case study used in this thesis was inspired by Domtar, which is a pulp and paper company located in Quebec, Canada. The results of three projects in this doctoral dissertation support decision-makers to reduce the human limitation in performing complicated procurement planning. The developed mathematical models provide a basis to evaluate the selected procurement strategy. This task is nearly impossible with current approaches in the company, as the evaluations require the formulation of v sourcing risks. The stochastic programming approach shows better financial results comparing to deterministic planning, with low variability in mitigating the impact of risks

Application of a Multi-Criteria Integrated Portfolio Model for Quantifying South Africa’s Crude Oil Import Risk

e availability of secure energy resources at sustainable quantities and affordable prices is fundamental to South Africa’s current objective of enhancing and sustaining its current growth trajectory. Economic reforms, since the early 1990s, have led to the economy growing at an average rate of almost 5% per annum. A major consequence of this strong growth is the rapid increase in domestic demand for oil energy. With small amounts of proven oil reserves, the rise in oil demand as an essential energy source has prompted an increasing reliance on external sources for domestic crude oil supplies. High oil prices, the extent of proven oil reserves, instability in major oil producing regions and the rise in ‘oil-nationalism’ have raised serious concerns about the security of South Africa’s oil supplies. In this context, a comprehensive understanding of oil import security risks is critical as it will guide in the formulation of energy policy framework aimed at alleviating the impact of oil import risks. This study utilises portfolio theory to provide quantitative measures of systematic and specific risks of South Africa’s crude oil imports over the period 1994 to 2007. It explains the relationship between supply sources diversification and oil energy security risks, and highlights the impact of different crude oil import policy adjustment strategies on the total crude oil import risk for South Africa. The results for the adjustment strategies show that: (a) a policy of having the same quantity of oil imported every month or a constant quantity of oil imported from the supply regions reduces both systematic and specific risks of oil import portfolio, and (b) a reduction in specific risks of South Africa’s oil imports can be achieved if some of the Middle Eastern supplies can be diversified to less risk regions of Europe, North America and Russia.Oil Import Risks, Portfolio Theory, Analytical Hierarchy Process

Does traceability play a role in retailer’s strategies for private labels?

Traceability is helping retailers manage food safety risks and support product differentiation. This paper aims to investigate how traceability may be used to screen supplier for private labels dedicated provider pools. Retailers in the UK and Italy have several private label product lines and increasingly select dedicated suppliers. The choice of providers is a typical agency problem as retailers contract the production for their private labels, having incomplete information on types and effort of their suppliers. Different contracts must be designed for suppliers of private labels depending on position of the product line and its food safety risk. A case study, based on the second largest Italian retailer reveals that traceability and quality assurance schemes are used together to manage suppliers of private labelsTraceability, dedicated providers, food products, retailing, vertical coordination, Marketing, Q13, Q18, L81, L66, L15,

Competition in the supply option market

This paper develops a multi-attribute competition model for procurement of short life cycle products. In such an environment, the buyer installs dedicated production capacity at the suppliers before the demand is realized. Final production orders are decided after demand materializes. Of course, the buyer is reluctant to bear all the capacity and inventory risk, and thus signs flexible contracts with several suppliers. We model the suppliers' offers as option contracts, where each supplier charges a reservation price per unit of capacity, and an execution price per unit of delivered supply. These two parameters illustrate the trade-off between total price and flexibility of the contract, and are both important to the buyer. We model the interaction between the suppliers and the buyer as a game in which the suppliers are the leaders and the buyer is the follower. Specifically, suppliers compete to provide supply capacity to the buyer and the buyer optimizes its expected profit by selecting one or more suppliers. We characterize the suppliers' equilibria in pure strategies for a class of customer demand distributions. In particular, we show that this type of interaction gives rise to cluster competition. That is, in equilibrium, suppliers tend to be clustered in small groups of two or three suppliers each, such that within the same group all suppliers use similar technologies and offer the same type of contract. Finally, we show that in equilibrium, the supply chain inefficiencies, i.e., the loss of profit due to competition, are in general at most 25% of the profit of a centralized supply chain, for a wide class of demand distributions.supplier portfolio; supplier competition;

Optimization of a dynamic supply portfolio considering risks and discount’s constraints

Purpose: Nowadays finding reliable suppliers in the global supply chains has become so important for success, because reliable suppliers would lead to a reliable supply and besides that orders of customer are met effectively . Yet, there is little empirical evidence to support this view, hence the purpose of this paper is to fill this need by considering risk in order to find the optimum supply portfolio. Design/methodology/approach: This paper proposes a multi objective model for the supplier selection portfolio problem that uses conditional value at risk (CVaR) criteria to control the risks of delayed, disrupted and defected supplies via scenario analysis. Also we consider discount’s constraints which are common assumptions in supplier selection problems. The proposed approach is capable of determining the optimal supply portfolio by calculating value-at-risk and minimizing conditional value-at-risk. In this study the Reservation Level driven Tchebycheff Procedure (RLTP) which is one of the reference point methods, is used to solve small size of our model through coding in GAMS. As our model is NP-hard; a meta-heuristic approach, Non-dominated Sorting Genetic Algorithm (NSGA) which is one of the most efficient methods for optimizing multi objective models, is applied to solve large scales of our model. Findings and Originality/value: In order to find a dynamic supply portfolio, we developed a Mixed Integer Linear Programming (MILP) model which contains two objectives. One objective minimizes the cost and the other minimizes the risks of delayed, disrupted and defected supplies. CVaR is used as the risk controlling method which emphases on low-probability, high-consequence events. Discount option as a common offer from suppliers is also implanted in the proposed model. Our findings show that the proposed model can help in optimization of a dynamic supplier selection portfolio with controlling the corresponding risks for large scales of real word problems. Practical implications: To approve the capability of our model various numerical examples are made and non-dominated solutions are generated. Sensitive analysis is made for determination of the most important factors. The results shows that how a dynamic supply portfolio would disperse the allocation of orders among the suppliers combined with the allocation of orders among the planning periods, in order to hedge against the risks of delayed, disrupted and defected supplies. Originality/value: This paper provides a novel multi objective model for supplier selection portfolio problem that is capable of controlling delayed, disrupted and defected supplies via scenario analysis. Also discounts, as an option offered from suppliers, are embedded in the model. Due to the large size of the real problems in the field of supplier selection portfolio a meta-heuristic method, NSGA II, is presented for solving the multi objective model. The chromosome represented for the proposed solving methodology is unique and is another contribution of this paper which showed to be adaptive with the essence of supplier selection portfolio problemPeer Reviewe

Service Value Chains and Effects of Scale

This paper generalizes Porter’s notion of the value chain for the analysis of service industries. The generalization entails that the flow and the physical transformation and assembly of goods that are characteristic of manufacturing are generalized into flows and transformation of data and flows and transformation of the physical and mental condition of people that are characteristic of many service industries. Utility is generalized from utilities of forms and function of goods, characteristic of manufacturing, to utilities of time, place, convenience, speed, safety, entertainment, physical and mental wellbeing, knowledge and mental capacity, funding and assurance. The analysis yields a categorization of industries according to central features of the value adding process. Here, the analysis is used to identify sources of (in)efficiency of scale, scope and experience, along the value chain.Service industries;production structure;economy of scale

The cost of choice: how corporate real estate managers evaluate business space options

Firms are faced with a wider set of choices when they identify a need for new office space. They can build or purchase accommodation, lease space for long or short periods with or without the inclusion of services, or they can use “instant office” solutions provided by serviced office operators. But how do they evaluate these alternatives and are they able to make rational choices? The research found that the shortening of business horizons lead to the desire for more office space on short-term contracts often with the inclusion of at least some facilities management and business support services. The need for greater flexibility, particularly in financial terms, was highlighted as an important criteria when selecting new office accommodation. The current office portfolios held were perceived not to meet these requirements. However, there was often a lack of good quality data available within occupiers which could be used to help them analyse the range of choices in the market. Additionally, there were other organisational constraints to making decisions about inclusive real estate products. These included fragmentation of decisions-making, internal politics and the lack of assessment of business risk alongside real estate risk. Overall therefore, corporate occupiers themselves act as an interial force to the development of new and innovative real estate products

Strategic and Operational Management of Supplier Involvement in New Product Development: a Contingency Perspective

This paper examines how firms succeed to leverage supplier involvement in product development. The paper extends earlier work on managing supplier involvement by providing an integrated analysis of results, processes and conditions both at the level of individual development projects and the overall firm. Following a multiple-case study approach with theoretical sampling, the study is carried out by examining eight projects in which four manufacturers from different industries involve multiple suppliers. The findings suggest that successful supplier involvement is dependent on the coordinated design, execution and evaluation of strategic, long-term processes and operational, short-term management processes and the presence of enabling factors such as a cross-functional oriented organization. The required intensity of these processes and enablers depends on contingencies such as firm size and environmental uncertainty. In contrast with previous research, we find no indications that managing supplier involvement requires a different approach in highly innovative projects compared to less innovative projects.innovation;new product development;purchasing;supplier relations;R&D management