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Impact of risk aversion and backup supplier on sourcing decisions of a firm

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  • Yasemin Merzifonluoglu

Abstract

This study focuses on a newsvendor problem with multiple suppliers, considering the risk-neutral and risk-averse objectives in a mean-risk optimisation model. The firm first decides order quantities from the primary (unreliable) suppliers and reserve capacity from the secondary (reliable) backup supplier. After the state of its primary suppliers and customer demand is revealed, the firm purchases from the available suppliers and uses the backup supplier subject to the reserved capacity. For the special case of normal distribution and risk-neutral objective, optimality properties were developed. A comprehensive numerical study examines the sensitivity of the sourcing strategies of firms to risk, shortage cost, demand uncertainty, salvage value, and capacity reserve options; various managerial insights are offered based on this.

Suggested Citation

  • Yasemin Merzifonluoglu, 2015. "Impact of risk aversion and backup supplier on sourcing decisions of a firm," International Journal of Production Research, Taylor & Francis Journals, vol. 53(22), pages 6937-6961, November.
    • Handle: RePEc:taf:tprsxx:v:53:y:2015:i:22:p:6937-6961
    DOI: 10.1080/00207543.2014.999956
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    Cited by:

    1. Yasemin Merzifonluoglu & Eray Uzgoren, 2018. "Photovoltaic power plant design considering multiple uncertainties and risk," Annals of Operations Research, Springer, vol. 262(1), pages 153-184, March.
    2. Merzifonluoglu, Yasemin, 2015. "Risk averse supply portfolio selection with supply, demand and spot market volatility," Omega, Elsevier, vol. 57(PA), pages 40-53.
    3. Silvia Carpitella & Ilyas Mzougui & Joaquín Izquierdo, 2022. "Multi-criteria risk classification to enhance complex supply networks performance," OPSEARCH, Springer;Operational Research Society of India, vol. 59(3), pages 769-785, September.
    4. Merzifonluoglu, Yasemin, 2017. "Integrated demand and procurement portfolio management with spot market volatility and option contracts," European Journal of Operational Research, Elsevier, vol. 258(1), pages 181-192.

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