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

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.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 28 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.