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A Newsvendor's Procurement Problem when Suppliers Are Unreliable

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Author Info

  • Maqbool Dada

    ()
    (Krannert Graduate School of Management, Purdue University, 403 West State Street, West Lafayette, Indiana 47907)

  • Nicholas C. Petruzzi

    ()
    (Department of Business Administration, University of Illinois at Urbana-Champaign, 1206 South 6th Street, Champaign, Illinois 61820)

  • Leroy B. Schwarz

    ()
    (Krannert Graduate School of Management, Purdue University, 403 West State Street, West Lafayette, Indiana 47907)

Registered author(s):

    Abstract

    We consider the problem of a newsvendor that is served by multiple suppliers, where any given supplier is defined to be either perfectly reliable or unreliable. By perfectly reliable we mean a supplier that delivers an amount identically equal to the amount desired, as is the case in the most basic variant of the newsvendor problem. By unreliable, we mean a supplier that with some probability delivers an amount strictly less than the amount desired. Our results indicate the following effects of unreliability: From the perspective of the newsvendor, the aggregate quantity ordered is higher than otherwise would be ordered if the newsvendor's suppliers were completely reliable. From the perspective of end customers, however, the service level provided is lower than otherwise would be provided if the newsvendor's suppliers were completely reliable. From the perspective of the suppliers, although reliability affects how much is ordered from a selected supplier, cost generally takes precedence over reliability when it comes to selecting suppliers in the first place. Even perfect reliability is no guarantee for qualification since, in an optimal solution, a given supplier will be selected only if all less-expensive suppliers are selected, regardless of the given supplier's reliability level. Nevertheless, the relative size of a selected supplier's order depends on its reliability.

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    File URL: http://dx.doi.org/10.1287/msom.1060.0128
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    Bibliographic Info

    Article provided by INFORMS in its journal Manufacturing & Service Operations Management.

    Volume (Year): 9 (2007)
    Issue (Month): 1 (August)
    Pages: 9-32

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    Handle: RePEc:inm:ormsom:v:9:y:2007:i:1:p:9-32

    Contact details of provider:
    Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA
    Phone: +1-443-757-3500
    Fax: 443-757-3515
    Email:
    Web page: http://www.informs.org/
    More information through EDIRC

    Related research

    Keywords: newsvendor; supplier diversification; random yield; multisupplier sourcing; procurement; disruption management;

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    Citations

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    Cited by:
    1. Cheong, Taesu & Song, Sang Hwa, 2013. "The value of information on supply risk under random yields," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 60(C), pages 27-38.
    2. Masih-Tehrani, Behdad & Xu, Susan H. & Kumara, Soundar & Li, Haijun, 2011. "A single-period analysis of a two-echelon inventory system with dependent supply uncertainty," Transportation Research Part B: Methodological, Elsevier, vol. 45(8), pages 1128-1151, September.
    3. Zhu, Stuart X., 2013. "Dynamic replenishment, production, and pricing decisions, in the face of supply disruption and random price-sensitive demand," International Journal of Production Economics, Elsevier, vol. 146(2), pages 612-619.
    4. Xu, Minghui & Lu, Ye, 2013. "The effect of supply uncertainty in price-setting newsvendor models," European Journal of Operational Research, Elsevier, vol. 227(3), pages 423-433.
    5. Zhang, Ju-liang & Zhang, Ming-yu, 2011. "Supplier selection and purchase problem with fixed cost and constrained order quantities under stochastic demand," International Journal of Production Economics, Elsevier, vol. 129(1), pages 1-7, January.
    6. Silbermayr, Lena & Minner, Stefan, 2014. "A multiple sourcing inventory model under disruption risk," International Journal of Production Economics, Elsevier, vol. 149(C), pages 37-46.
    7. Hu, Xiangling & Motwani, Jaideep G., 2014. "Minimizing downside risks for global sourcing under price-sensitive stochastic demand, exchange rate uncertainties, and supplier capacity constraints," International Journal of Production Economics, Elsevier, vol. 147(PB), pages 398-409.
    8. Bilsel, R. Ufuk & Ravindran, A., 2011. "A multiobjective chance constrained programming model for supplier selection under uncertainty," Transportation Research Part B: Methodological, Elsevier, vol. 45(8), pages 1284-1300, September.
    9. Tan, Barış & Çömden, Nihan, 2012. "Agricultural planning of annual plants under demand, maturation, harvest, and yield risk," European Journal of Operational Research, Elsevier, vol. 220(2), pages 539-549.
    10. Chen, Junlin & Zhao, Xiaobo & Zhou, Yun, 2012. "A periodic-review inventory system with a capacitated backup supplier for mitigating supply disruptions," European Journal of Operational Research, Elsevier, vol. 219(2), pages 312-323.
    11. Qi, Lian, 2013. "A continuous-review inventory model with random disruptions at the primary supplier," European Journal of Operational Research, Elsevier, vol. 225(1), pages 59-74.
    12. Ojha, Divesh & Salimath, Manjula & D’Souza, Derrick, 2014. "Disaster immunity and performance of service firms: The influence of market acuity and supply network partnering," International Journal of Production Economics, Elsevier, vol. 147(PB), pages 385-397.
    13. Eng, Shao Wei Lester & Chew, Ek Peng & Lee, Loo Hay, 2014. "Impacts of supplier knowledge sharing competences and production capacities on radical innovative product sourcing," European Journal of Operational Research, Elsevier, vol. 232(1), pages 41-51.
    14. Wang, Yimin & Xiao, Yixuan & Yang, Nan, 2014. "Improving reliability of a shared supplier with competition and spillovers," European Journal of Operational Research, Elsevier, vol. 236(2), pages 499-510.
    15. Manerba, Daniele & Mansini, Renata, 2012. "An exact algorithm for the Capacitated Total Quantity Discount Problem," European Journal of Operational Research, Elsevier, vol. 222(2), pages 287-300.
    16. Yim, Andrew, 2010. "Quality Cost and Failure Risk in the Choice of Single versus Multiple Sourcing," MPRA Paper 27858, University Library of Munich, Germany.
    17. Li, Xiaopeng, 2013. "An integrated modeling framework for design of logistics networks with expedited shipment services," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 56(C), pages 46-63.
    18. Serel, Dogan A., 2008. "Inventory and pricing decisions in a single-period problem involving risky supply," International Journal of Production Economics, Elsevier, vol. 116(1), pages 115-128, November.

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