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Vulnerable options in supply chains: Effects of supplier competition

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  • Volodymyr Babich

Abstract

Concerned with the risk of supplier default, a firm may choose to diversify its orders among multiple suppliers. Furthermore, the discrepancy in production lead‐times among suppliers furnishes a firm with a valuable option to defer ordering decisions until uncertainty has been partially resolved. The suppliers also have an option: to defer their pricing decisions. Using a single‐period, multi‐stage model of a two‐echelon supply chain with competing risky suppliers and a single manufacturer, this paper investigates how the supplier default risk and default co‐dependence affect manufacturer procurement and production decisions, supplier pricing decisions, firms profits, and the deferment option value and how the introduction of the deferment option alters supplier competition. © 2006 Wiley Periodicals, Inc. Naval Research Logistics 2006

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  • Volodymyr Babich, 2006. "Vulnerable options in supply chains: Effects of supplier competition," Naval Research Logistics (NRL), John Wiley & Sons, vol. 53(7), pages 656-673, October.
    • Handle: RePEc:wly:navres:v:53:y:2006:i:7:p:656-673
    DOI: 10.1002/nav.20181
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    Cited by:

    1. Babich, Volodymyr & Hilary, Gilles, 2019. "Blockchain and other Distributed Ledger Technologies in Operations," Foundations and Trends(R) in Technology, Information and Operations Management, now publishers, vol. 12(2-3), pages 152-172, March.
    2. Catarina Ferreira & Catarina Cardoso & Mariana Travassos & Mariana Paiva & Micaela Pestana & João M. Lopes & Márcio Oliveira, 2021. "Disorders, Vulnerabilities and Resilience in the Supply Chain in Pandemic Times," Logistics, MDPI, vol. 5(3), pages 1-16, July.
    3. Brian Tomlin, 2009. "Disruption‐management strategies for short life‐cycle products," Naval Research Logistics (NRL), John Wiley & Sons, vol. 56(4), pages 318-347, June.
    4. Volodymyr Babich & Gilles Hilary, 2019. "Distributed Ledgers and Operations: What Operations Management Researchers Should Know about Blockchain Technology," Post-Print hal-02005158, HAL.
    5. Bardia Kamrad & Akhtar Siddique & Ricardo Ernst, 2012. "Partial equilibrium in risk‐based production decisions," Naval Research Logistics (NRL), John Wiley & Sons, vol. 59(1), pages 1-17, February.
    6. Yutian Chen & Ying-Ju Chen, 2020. "Strategic partial outsourcing in the presence of single-source components," Journal of Economics, Springer, vol. 131(3), pages 237-265, December.
    7. Lan, Yanfei & Cai, Xiaoqiang & Shang, Changjing & Zhang, Lianmin & Zhao, Ruiqing, 2020. "Heterogeneous suppliers’ contract design in assembly systems with asymmetric information," European Journal of Operational Research, Elsevier, vol. 286(1), pages 149-163.
    8. Ting Chen & Hagit Levy & Xiumin Martin & Ron Shalev, 2021. "Buying products from whom you know: personal connections and information asymmetry in supply chain relationships," Review of Accounting Studies, Springer, vol. 26(4), pages 1492-1531, December.
    9. Xiaodan Jin & Hong Zhou, 2022. "Incentives to Enhance Production Reliability against Disruption: Cost-Sharing vs. Penalty," Sustainability, MDPI, vol. 14(15), pages 1-18, July.
    10. Sting, Fabian J. & Huchzermeier, Arnd, 2010. "Ensuring responsive capacity: How to contract with backup suppliers," European Journal of Operational Research, Elsevier, vol. 207(2), pages 725-735, December.

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