A real-options-based analysis for supply chain decisions

Nembhard, Harriet Black; Shi, Leyuan; Aktan, Mehmet

doi:10.1080/07408170591008073

Cited by 43 publications

(26 citation statements)

References 21 publications

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“…Here a real options approach was used to estimate the value of flexibility and to determine the optimum strategy to manage the flexibility under uncertainty in the currency exchange rate. However, the study found that without considering time lag impact, the value of the operational flexibility was in fact significantly overestimated (Nembhart et al, 2005). This view is not shared by other authors.…”

contrasting

confidence: 40%

“…Of all literature reviewed pertaining to CSCM, only a handful has attempted to apply the concept of ROs in their analysis in order to examine the added value of flexibility to the projects under consideration (e.g. Spinler et al, 2002;Yim et al, 2011;Nembhart et al, 2005). The concept of RO is essentially an adoption of the financial industry's Options Theory to real-life projects.…”

Section: Background On Real Optionsmentioning

confidence: 99%

“…Nembhart and his colleagues realised the importance of this flexibility (Nembhart et al, 2005). Their research tested the idea by developing a supply chain model in which a manufacturing firm could have the flexibility to select different suppliers, plant locations, and market regions and there can be an implementation time lag for the supply chain operations.…”

mentioning

confidence: 99%

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Directions for future construction supply chain management research in New Zealand:A real options perspective

Tran¹,

Tookey²

2012

IJCSCM

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contrasting

confidence: 40%

Section: Background On Real Optionsmentioning

confidence: 99%

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Directions for future construction supply chain management research in New Zealand:A real options perspective

Tran¹,

Tookey²

2012

IJCSCM

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“…Flexibility has shown improvements typically ranging between 10% and 30% compared to the outcome from standard design and evaluation practice in different industries: strategic phasing of airport terminals development (de Neufville and Odoni 2003;Gil 2007), offshore platforms designed for future capacity expansion (Jablonowski, Wiboonskij-Arphakul, and Neuhold 2008), strategic investments in new nuclear plant facilities (Rothwell 2006), supply chain adaptation to fluctuating exchange rates (Nembhard, Shi, and Aktan 2005), strategic investment in innovative water technologies (Zhang and Babovic 2012), etc. Examples abound.…”

Section: Flexibility In Engineering Systems Design: Computational Chamentioning

confidence: 99%

3.1.2 Design Catalogues: An Efficient Search Approach for Improved Flexibility in Engineering Systems Design

Cardin

Neufville

2013

INCOSE International Symp

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Abstract. This paper proposes and demonstrates design catalogues as a computationally efficient method for identifying improved designs for complex technological systems. This new process significantly speeds up the analysis of systems that will operate and will be managed under various uncertainty scenarios. It enables analysts to explore the design space more fully, taking into account a greater number of design parameters and variables. It can lead to design solutions with greatly improved lifecycle performance. The design catalogue consists of a small subset of designs that collectively perform reasonably well over a range of possible scenarios. The catalogue approach contrasts with the usual approach that optimizes designs for each scenario, and thus can only afford to examine a limited number of situations. Each design in the catalogue consists of combinations of design variables, parameters, and flexibility decision rules. The set of designs in the catalogue is determined using adaptive One-Factor-At-a-Time (aOFAT) analysis. An example demonstrates the use and how it leads to improved lifecycle performance compared to a standard benchmark design.

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“…It reduces the effect from downside, risky scenarios while positioning the system to capitalize on upside, favorable opportunities. Examples in engineering systems design abound: development of innovative water technologies (Zhang and Babovic 2012), offshore oil platform design for future capacity expansion (Jablonowski et al 2008), adaptive supply chain mechanisms for uncertain exchange rates (Nembhard et al 2005), etc.…”

mentioning

confidence: 99%

Empirical evaluation of procedures to generate flexibility in engineering systems and improve lifecycle performance

et al. 2012

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The design of engineering systems like airports, communication infrastructures, and real estate projects today is growing in complexity. Designers need to consider sociotechnical uncertainties, intricacies, and processes in the longterm strategic deployment and operations of these systems. Flexibility in engineering design provides ways to deal with this complexity. It enables engineering systems to change in the face of uncertainty to reduce impacts from downside scenarios (e.g., unfavorable market conditions) while capitalizing on upside opportunities (e.g., new technology). Many case studies have shown that flexibility can improve anticipated lifecycle performance (e.g., expected economic value) compared to current design and evaluation approaches. It is a difficult process requiring guidance and must be done at an early conceptual stage. The literature offers little guidance on procedures helping designers do this systematically in a collaborative context. This study investigated the effects of two educational training procedures on flexibility (current vs. explicit) and two ideation procedures (free undirected brainstorming vs. prompting) to guide this process and improve anticipated lifecycle performance. Controlled experiments were conducted with ninety participants working on a simplified engineering systems design problem. Results suggest that a prompting mechanism for flexibility can help generate more flexible design concepts than free undirected brainstorming. These concepts can improve performance significantly (by up to 36 %) compared to a benchmark design-even though users did not expect improved quality of results. Explicit training on flexibility can improve user satisfaction with the process, results, and results quality in comparison with current engineering and design training on flexibility. These findings give insights into the crafting and application of simple, intuitive, and efficient procedures to improve lifecycle performance by means of flexibility and performance that may be left aside with existing design approaches. The experimental results are promising toward further evaluation in a real-world setting.

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A real-options-based analysis for supply chain decisions

Cited by 43 publications

References 21 publications

Directions for future construction supply chain management research in New Zealand:A real options perspective

Directions for future construction supply chain management research in New Zealand:A real options perspective

3.1.2 Design Catalogues: An Efficient Search Approach for Improved Flexibility in Engineering Systems Design

Empirical evaluation of procedures to generate flexibility in engineering systems and improve lifecycle performance

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