Supplier diversification under random yield

Abstract We consider the problem of a retailer that is served by multiple suppliers, where any given supplier, who leads to random yield in orders, is defined to be unreliable. We examine how random yield affects the outcome of supplier selection and the retailer's profit in two cases: independent random yields (IRY) and correlated random yields (CRY). For the IRY, we show that the wholesale price generally takes precedence over reliability in the retailer's supplier selection, that is, a given supplier will be selected only if all less-expensive suppliers are selected, regardless of the given supplier's reliability level. For the CRY, we show that the results may be totally different from results obtained in the IRY. That is, a given supplier is selected but not all less-expensive suppliers are selected. Moreover, we examine the impacts of yield uncertainty on the retailer's profit. We show that the retailer might be better off under unreliable suppliers than under completely reliable suppliers.

[1]  Maqbool Dada,et al.  A Newsvendor's Procurement Problem when Suppliers Are Unreliable , 2007, Manuf. Serv. Oper. Manag..

[2]  W. Shih.  Optimal inventory policies when stockouts result from defective products , 1980 .

[3]  E. Silver.  Establishing The Order Quantity When The Amount Received Is Uncertain , 1976 .

[4]  Süleyman Özekici,et al.  Inventory models with random yield in a random environment , 2002 .

[5]  Volodymyr Babich,et al.  Competition and Diversification Effects in Supply Chains with Supplier Default Risk , 2006, Manuf. Serv. Oper. Manag..

[6]  R. Akella,et al.  Diversification under supply uncertainty , 1993 .

[7]  Pinar Keskinocak,et al.  Dynamic procurement in a capacitated supply chain facing uncertain demand , 2008 .

[8]  Steven Nahmias,et al.  RATIONALIZATION OF THE SUPPLIER BASE IN THE PRESENCE OF YIELD UNCERTAINTY , 2009 .

[9]  Yves Dallery,et al.  A comprehensive analysis of the Newsvendor model with unreliable supply , 2007, OR Spectr..

[10]  Yigal Gerchak,et al.  The Structure of Periodic Review Policies in the Presence of Random Yield , 1990, Oper. Res..

[11]  M. Parlar,et al.  A periodic review inventory model with Markovian supply availability , 1995 .

[12]  H. M. Wagner,et al.  Algorithms and Heuristics for Variable-Yield Lot-Sizing. , 1987 .

[13]  Douglas J. Lucas.  Default Correlation and Credit Analysis , 1995 .

[14]  Pinar Keskinocak,et al.  Dynamic Procurement, Quantity Discounts, and Supply Chain Efficiency , 2008 .

[15]  M. Parlar,et al.  Diversification under yield randomness in inventory models , 1993 .

[16]  Yigal Gerchak,et al.  Yield randomness, cost tradeoffs, and diversification in the EOQ model , 1990 .

[17]  J. Rezaei,et al.  Economic order quantity and purchasing price for items with imperfect quality when inspection shifts from buyer to supplier , 2012 .

[18]  Yossi Sheffi,et al.  The Resilient Enterprise: Overcoming Vulnerability for Competitive Advantage , 2005 .

[19]  Hau L. Lee,et al.  Production Control in Multistage Systems with Variable Yield Losses , 1988, Oper. Res..

[20]  Qing Li,et al.  Joint Inventory Replenishment and Pricing Control for Systems with Uncertain Yield and Demand , 2006, Oper. Res..

[21]  Sarang Deo,et al.  Cournot Competition Under Yield Uncertainty: The Case of the U.S. Influenza Vaccine Market , 2009, Manuf. Serv. Oper. Manag..

[22]  M. Parlar,et al.  Periodic Review Production Models With Variable Yield And Uncertain Demand , 1988 .

[23]  Ke Liu,et al.  An Analysis of Pricing Power Allocation in Supply Chains of Random Yield and Random Demand , 2009 .

[24]  Emre Berk,et al.  Supplier diversification under binomial yield , 2008, Oper. Res. Lett..

[25]  Guillermo Gallego,et al.  Optimal Policies for Production/Inventory Systems with Finite Capacity and Markov-Modulated Demand and Supply Processes , 2004, Ann. Oper. Res..

[26]  Jian Yang,et al.  Sourcing with random yields and stochastic demand: A newsvendor approach , 2007, Comput. Oper. Res..

[27]  Süleyman Özekici,et al.  Inventory management with random supply and imperfect information: A hidden Markov model , 2011 .

[28]  A. Kalro,et al.  A lot size model with backloǵ ǵinǵ when the amount received is uncertain , 1982 .

[29]  Mahmut Parlar,et al.  Inventory models with unreliable suppliersin a random environment , 1999, Ann. Oper. Res..

[30]  Peter H. Ritchken,et al.  Option Pricing with Downward-Sloping Demand Curves: The Case of Supply Chain Options , 2005, Manag. Sci..

[31]  Scott E. Grasman,et al.  Newsvendor solutions with general random yield distributions , 2007, RAIRO Oper. Res..

[32]  Xiaoming Yan,et al.  Effects of setup cost and random yield on the structure of optimal ordering policy , 2010 .

[33]  Süleyman Özekici,et al.  An EOQ model with multiple suppliers and random capacity , 2006 .

[34]  Okitsugu Fujiwara,et al.  Optimality of Myopic Ordering Policies for Inventory Model with Stochastic Supply , 2000, Oper. Res..

[35]  Yunzeng Wang,et al.  Periodic review production models with variable capacity, random yield, and uncertain demand , 1996 .

[36]  Brian Tomlin.  Disruption‐management strategies for short life‐cycle products , 2009 .

[37]  T. Morton,et al.  A periodic review, production planning model with uncertain capacity and uncertain demand—optimality of extended myopic policies , 1994 .

[38]  Bibhas C. Giri,et al.  Managing inventory with two suppliers under yield uncertainty and risk aversion , 2011 .