A real-option approach to mitigate disruption risk in the supply chain

He, Junping; Alavifard, Farzad; Ivanov, Dmitry; Jahani, Hamed

doi:10.1016/j.omega.2018.08.008

Cited by 88 publications

(33 citation statements)

References 27 publications

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“…However, multiple sources of uncertainty exist in the market and hence further studies should consider them. Of course, being “more stochastic” usually implies more complexity in modeling and analyses (He et al., 2019). This would hence also call for more advanced optimization methods and the development of robust heuristics.…”

Section: Resultsmentioning

confidence: 99%

Editorial to the Special Issue onOperations Research Models for Supply Chain Finance

Choi

Ivanov

2020

Int Trans Operational Res

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Section: Resultsmentioning

confidence: 99%

Editorial to the Special Issue onOperations Research Models for Supply Chain Finance

Choi

Ivanov

2020

Int Trans Operational Res

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“…He et al. () studied the optimal ordering decision policy for a retailer whose supply is exposed to supply disruptions. In their study, they assume correlated demand and price uncertainty and optimize the inventory planning for the retailer in a two‐stage SC.…”

Section: Literature Reviewmentioning

confidence: 99%

Supply chain financing with advance selling under disruption

Gupta

Chutani

2019

Int Trans Operational Res

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We study a financing problem in a supply chain (SC) consisting of one supplier and one buyer under supply disruption. The supplier could face a disruption at its end which could effectively reduce its yield in case of disruption, thereby resulting in supply yield uncertainty. The retailer can finance the supplier using advance selling that can help mitigate the impact of disruption. We model this problem as a Stackelberg game, where the supplier as the leader announces the wholesale price and the retailer responds by deciding its optimal order quantity given stochastic demand and an exogenous fixed retail price. The supplier then commences production and a disruption can happen with a known probability. We assume that under disruption the quantity delivered is a fraction of the initial quantity ordered by the retailer. The retailer loses any unmet demand. We analyze three different scenarios of the Stackelberg game, namely no advance selling with disruption, advance selling without disruption, and advance selling with disruption. Our results indicate that advance selling can be used to mitigate the impact of supply disruption and at the same time could lead to an increase in the overall SC profit.

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“…There is a substantial body of work on the applications of real options in corporate finance, operational research, and supply chain management literature (cf. Mun, ; He et al., ; Ivanov et al., ; Jahani et al., ; and the references therein). In this paper, we extend this work to determine the optimal liquidation strategy for production plants operating in oligopolistic markets.…”

Section: Introductionmentioning

confidence: 99%

Optimal divestment time in supply chain redesign under oligopoly: evidence from shale oil production plants

Alavifard¹,

Ivanov

2019

Int Trans Operational Res

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This paper investigates the optimal timing for the closure of production plants in the context of supply chain redesign. We consider producers operating under oligopoly and analyze their optimal decisions with the aid of real options. We contextualize this study in the energy supply chain, where revenue is heavily influenced by the Organization of the Petroleum Exporting Countries (OPEC). It is optimal to divest from a production if certain values pass below the liquidation cost. The optimal time to divest is, then, the optimal time to exercise a perpetual American put option on the total value of the project, where the strike price is the liquidation value and expenses. The OPEC oligpolistic power is modeled with the aid of a hidden market in a Hidden Markov Model, since the state of the Markov chain is not directly visible to the production manager. The reported results can be used by supply chain managers in decision making on production network redesign in the oligopolistic environment considering present value of plants and cash flows in the supply chain. The advantage of the modeling approach proposed is its analytical tractability, especially for project valuation and real-option problems.

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A real-option approach to mitigate disruption risk in the supply chain

Cited by 88 publications

References 27 publications

Editorial to the Special Issue onOperations Research Models for Supply Chain Finance

Editorial to the Special Issue onOperations Research Models for Supply Chain Finance

Supply chain financing with advance selling under disruption

Optimal divestment time in supply chain redesign under oligopoly: evidence from shale oil production plants

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