IDEAS home Printed from https://ideas.repec.org/a/eee/jomega/v36y2008i1p122-130.html
   My bibliography  Save this article

Supplies from developing countries: Optimal order quantities under loss risks

Author

Listed:
  • Sounderpandian, Jayavel
  • Prasad, Sameer
  • Madan, Manu

Abstract

When raw material suppliers of a global supply chain are situated in developing countries, not only will there be long lead times but there could also be a possibility of material losses in transit. The magnitude of the losses will be uncertain and can be significant. We consider the optimization of order quantity decisions in such situations. The long lead times imply that we need to take into account the uncertainty in finished goods demands for which the raw materials are to be ordered. The order quantities have to be optimized carefully as they determine the "real options" that become available later in production plans. Using data from the plywood industry and using stochastic programming we demonstrate a method for solving such problems. The method combines simulation and optimization. An interesting observation we make is that the optimal order quantity of a material need not be monotonic in expected loss of that material. In addition, we offer explanations as to why the expected loss need not be monotonic.

Suggested Citation

  • Sounderpandian, Jayavel & Prasad, Sameer & Madan, Manu, 2008. "Supplies from developing countries: Optimal order quantities under loss risks," Omega, Elsevier, vol. 36(1), pages 122-130, February.
  • Handle: RePEc:eee:jomega:v:36:y:2008:i:1:p:122-130
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0305-0483(05)00175-1
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. De-Li Yang & Weiqin Mou, 1993. "An Integrated Decision Support System in a Chinese Chemical Plant," Interfaces, INFORMS, vol. 23(6), pages 93-100, December.
    2. Badri, Masood A. & Davis, Donald & Davis, Donna, 2000. "Operations strategy, environmental uncertainty and performance: a path analytic model of industries in developing countries," Omega, Elsevier, vol. 28(2), pages 155-173, April.
    3. Amitrajeet A. Batabyal & Hamid Beladi, 2008. "A Dynamic Analysis Of Protection And Environmental Policy In A Small Trading Developing Country," World Scientific Book Chapters, in: Dynamic And Stochastic Approaches To The Environment And Economic Development, chapter 11, pages 189-212, World Scientific Publishing Co. Pte. Ltd..
    4. Bengtsson, Jens & Olhager, Jan, 2002. "Valuation of product-mix flexibility using real options," International Journal of Production Economics, Elsevier, vol. 78(1), pages 13-28, July.
    5. Jayaram K. Sankaran & Rahul R. Ubgade, 1994. "Routing Tankers for Dairy Milk Pickup," Interfaces, INFORMS, vol. 24(5), pages 59-66, October.
    6. Goonatilake, Lalith, 1990. "Inventory management in the manufacturing sector in developing countries," Engineering Costs and Production Economics, Elsevier, vol. 19(1-3), pages 19-24, May.
    7. Zhao Qingzhen & Wang Changyu & Zhang Zhimin & Zhang Yunxiang & Wang Chuanjiang, 1991. "The Application of Operations Research in the Optimization of Agricultural Production," Operations Research, INFORMS, vol. 39(2), pages 194-205, April.
    8. Lenneal J. Henderson, 2004. "Emergency and Disaster: Pervasive Risk and Public Bureaucracy in Developing Nations," Public Organization Review, Springer, vol. 4(2), pages 103-119, June.
    9. E A Silver & D Costa, 1998. "Some replenishment rules considering payment periods and risk of outdating," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 49(8), pages 861-869, August.
    10. S-U Rahman & D K Smith, 1999. "Deployment of rural health facilities in a developing country," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 50(9), pages 892-902, September.
    11. Silver, Edward A. & Jain, Karuna, 1994. "Some ideas regarding reserving supplier capacity and selecting replenishment quantities in a project context," International Journal of Production Economics, Elsevier, vol. 35(1-3), pages 177-182, June.
    12. Sinha, Surendra B. & Sastry, Somayajula V. C. & Misra, Rameswar P., 1988. "Management of a community storage system: A coal programming model," European Journal of Operational Research, Elsevier, vol. 34(1), pages 92-98, February.
    13. Vijayalakshmi, B., 1987. "An application of multi-objective modeling: The case of the Indian sugar industry," European Journal of Operational Research, Elsevier, vol. 28(2), pages 146-153, February.
    14. M I Desa & A H Christer, 2001. "Modelling in the absence of data: a case study of fleet maintenance in a developing country," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 52(3), pages 247-260, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Driouchi, Tarik & Leseure, Michel & Bennett, David, 2009. "A robustness framework for monitoring real options under uncertainty," Omega, Elsevier, vol. 37(3), pages 698-710, June.
    2. Wu, Desheng & Olson, David L., 2008. "Supply chain risk, simulation, and vendor selection," International Journal of Production Economics, Elsevier, vol. 114(2), pages 646-655, August.
    3. Tang, Ou & Nurmaya Musa, S., 2011. "Identifying risk issues and research advancements in supply chain risk management," International Journal of Production Economics, Elsevier, vol. 133(1), pages 25-34, September.
    4. Shanshan Guo & Lei Zhao & Xiaowei Xu, 2016. "Impact of supply risks on procurement decisions," Annals of Operations Research, Springer, vol. 241(1), pages 411-430, June.
    5. Sawik, Tadeusz, 2011. "Selection of supply portfolio under disruption risks," Omega, Elsevier, vol. 39(2), pages 194-208, April.
    6. Shu Feng & Chun-Yu Ho, 2016. "The real option approach to adoption or discontinuation of a management accounting innovation: the case of activity-based costing," Review of Quantitative Finance and Accounting, Springer, vol. 47(3), pages 835-856, October.
    7. Gunasekaran, Angappa & Lai, Kee-hung & Edwin Cheng, T.C., 2008. "Responsive supply chain: A competitive strategy in a networked economy," Omega, Elsevier, vol. 36(4), pages 549-564, August.
    8. Wu, Jun & Li, Jian & Wang, Shouyang & Cheng, T.C.E., 2009. "Mean-variance analysis of the newsvendor model with stockout cost," Omega, Elsevier, vol. 37(3), pages 724-730, June.
    9. Lin, Tyrone T. & Huang, Shio-Ling, 2011. "Application of the modified Tobin's q to an uncertain energy-saving project with the real options concept," Energy Policy, Elsevier, vol. 39(1), pages 408-420, January.
    10. Fagerholt, Kjetil & Christiansen, Marielle & Magnus Hvattum, Lars & Johnsen, Trond A.V. & Vabø, Thor J., 2010. "A decision support methodology for strategic planning in maritime transportation," Omega, Elsevier, vol. 38(6), pages 465-474, December.
    11. Yu, Haisheng & Zeng, Amy Z. & Zhao, Lindu, 2009. "Single or dual sourcing: decision-making in the presence of supply chain disruption risks," Omega, Elsevier, vol. 37(4), pages 788-800, August.
    12. Lin, Tyrone T. & Huang, Shio-Ling, 2010. "An entry and exit model on the energy-saving investment strategy with real options," Energy Policy, Elsevier, vol. 38(2), pages 794-802, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Massimiliano Caramia & Francesca Guerriero, 2010. "A Milk Collection Problem with Incompatibility Constraints," Interfaces, INFORMS, vol. 40(2), pages 130-143, April.
    2. Seebacher, Gottfried & Winkler, Herwig, 2014. "Evaluating flexibility in discrete manufacturing based on performance and efficiency," International Journal of Production Economics, Elsevier, vol. 153(C), pages 340-351.
    3. Olcay Polat & Duygu Topaloğlu, 2022. "Collection of different types of milk with multi-tank tankers under uncertainty: a real case study," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 30(1), pages 1-33, April.
    4. Lin, Tyrone T., 2009. "Applying the maximum NPV rule with discounted/growth factors to a flexible production scale model," European Journal of Operational Research, Elsevier, vol. 196(2), pages 628-634, July.
    5. Ailton Batista de Albuquerque Junior & Andréia Nunes de Sousa & Annalies Barbosa Borges & Oliveira Cristiane Simões & Edinilza Maria Anastácio Feitosa & Edite Batista de Albuquerque, 2021. "Evaluation of School Learning in Preceptoral Training: Checks and Reverberations," European Journal of Social Sciences Education and Research Articles, Revistia Research and Publishing, vol. 8, May - Aug.
    6. Murawski, Lisa & Church, Richard L., 2009. "Improving accessibility to rural health services: The maximal covering network improvement problem," Socio-Economic Planning Sciences, Elsevier, vol. 43(2), pages 102-110, June.
    7. Moshfique Uddin & Anup Chowdhury & Geoffrey Wood, 2022. "The resilience of the British and European goods industry: Challenge of Brexit," Industrial and Corporate Change, Oxford University Press, vol. 31(4), pages 934-954.
    8. Masson, Renaud & Lahrichi, Nadia & Rousseau, Louis-Martin, 2016. "A two-stage solution method for the annual dairy transportation problem," European Journal of Operational Research, Elsevier, vol. 251(1), pages 36-43.
    9. Hallgren, Mattias & Olhager, Jan, 2009. "Flexibility configurations: Empirical analysis of volume and product mix flexibility," Omega, Elsevier, vol. 37(4), pages 746-756, August.
    10. Saghiri, Soroosh S. & Barnes, Stuart J., 2016. "Supplier flexibility and postponement implementation: An empirical analysis," International Journal of Production Economics, Elsevier, vol. 173(C), pages 170-183.
    11. Llorens, F. Javier & Molina, Luis M. & Verdu, Antonio J., 2005. "Flexibility of manufacturing systems, strategic change and performance," International Journal of Production Economics, Elsevier, vol. 98(3), pages 273-289, December.
    12. Vicente Fruet & Daniel Campos & Lorena Caridad, 2023. "Itaipu Binational Dam: A Quantitative Analysis of the Economic and Social Impacts in Paraguay. Successful or not?," SAGE Open, , vol. 13(4), pages 21582440231, December.
    13. Paredes-Belmar, Germán & Montero, Elizabeth & Lüer-Villagra, Armin & Marianov, Vladimir & Araya-Sassi, Claudio, 2022. "Vehicle routing for milk collection with gradual blending: A case arising in Chile," European Journal of Operational Research, Elsevier, vol. 303(3), pages 1403-1416.
    14. Cao, Qing & Baker, Jeff & Schniederjans, Dara, 2014. "Bullwhip effect reduction and improved business performance through guanxi: An empirical study," International Journal of Production Economics, Elsevier, vol. 158(C), pages 217-230.
    15. Belarmino Adenso-Díaz & Mónica González & Emérita García, 1998. "A Hierarchical Approach to Managing Dairy Routing," Interfaces, INFORMS, vol. 28(2), pages 21-31, April.
    16. Jain, Vineet & Raj, Tilak, 2016. "Modeling and analysis of FMS performance variables by ISM, SEM and GTMA approach," International Journal of Production Economics, Elsevier, vol. 171(P1), pages 84-96.
    17. Paredes-Belmar, Germán & Marianov, Vladimir & Bronfman, Andrés & Obreque, Carlos & Lüer-Villagra, Armin, 2016. "A milk collection problem with blending," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 94(C), pages 26-43.
    18. Corsten, Hans & Gossinger, Ralf, 2006. "Output flexibility of service enterprises -- an analysis based on production theory," International Journal of Production Economics, Elsevier, vol. 104(2), pages 296-307, December.
    19. Dowlatshahi, Shad & Cao, Qing, 2006. "The relationships among virtual enterprise, information technology, and business performance in agile manufacturing: An industry perspective," European Journal of Operational Research, Elsevier, vol. 174(2), pages 835-860, October.
    20. Merschmann, Ulf & Thonemann, Ulrich W., 2011. "Supply chain flexibility, uncertainty and firm performance: An empirical analysis of German manufacturing firms," International Journal of Production Economics, Elsevier, vol. 130(1), pages 43-53, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jomega:v:36:y:2008:i:1:p:122-130. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/375/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.