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Vulnerable options in supply chains: effects of supplier competition. (English) Zbl 1106.90007
Summary: 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.

MSC:
90B05 Inventory, storage, reservoirs
90B50 Management decision making, including multiple objectives
91B30 Risk theory, insurance (MSC2010)
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