Competition and Diversification Effects in Supply Chains with Supplier Default Risk

Authors:
Volodymyr Babich;Apostolos N. Burnetas;Peter H. Ritchken
Affiliations:
Industrial and Operations Engineering Department, University of Michigan, Ann Arbor, Michigan 48109;Department of Mathematics, University of Athens, Athens, Greece;Department of Banking and Finance, Weatherhead School of Management, Case Western Reserve University, Cleveland, Ohio 44106
Venue:
Manufacturing & Service Operations Management
Year:
2007

Citing 0
Cited 19

A Newsvendor's Procurement Problem when Suppliers Are Unreliable

Manufacturing & Service Operations Management
Supply Disruptions, Asymmetric Information, and a Backup Production Option

Management Science
Long-Term Contracts Under the Threat of Supplier Default

Manufacturing & Service Operations Management
Supply Contracts with Financial Hedging

Operations Research
Impact of Supply Learning When Suppliers Are Unreliable

Manufacturing & Service Operations Management
Competition Under Generalized Attraction Models: Applications to Quality Competition Under Yield Uncertainty

Management Science
Cognitive mobile virtual network operator: investment and pricing with supply uncertainty

INFOCOM'10 Proceedings of the 29th conference on Information communications
Mitigating Supply Risk: Dual Sourcing or Process Improvement?

Manufacturing & Service Operations Management
Independence of Capacity Ordering and Financial Subsidies to Risky Suppliers

Manufacturing & Service Operations Management
Capacity Investment Timing by Start-ups and Established Firms in New Markets

Management Science
Optimal Procurement Design in the Presence of Supply Risk

Manufacturing & Service Operations Management
Operational causes of bankruptcy propagation in supply chain

Decision Support Systems
TECHNICAL NOTE---Procurement Strategies with Unreliable Suppliers

Operations Research
Supplier Diversification Strategies in the Presence of Yield Uncertainty and Buyer Competition

Manufacturing & Service Operations Management
Using a Dual-Sourcing Option in the Presence of Asymmetric Information About Supplier Reliability: Competition vs. Diversification

Manufacturing & Service Operations Management
An inventory system with two suppliers and default risk

Operations Research Letters
Supply-Side Story: Risks, Guarantees, Competition, and Information Asymmetry

Management Science
Managing Disruption Risk: The Interplay Between Operations and Insurance

Management Science
Lot Sizing and Dynamic Pricing with Random Yield and Different Qualities

International Journal of Advanced Pervasive and Ubiquitous Computing

Quantified Score

Hi-index	0.00

Visualization

Abstract

We study the effects of disruption risk in a supply chain where one retailer deals with competing risky suppliers who may default during their production lead times. The suppliers, who compete for business with the retailer by setting wholesale prices, are leaders in a Stackelberg game with the retailer. The retailer, facing uncertain future demand, chooses order quantities while weighing the benefits of procuring from the cheapest supplier against the advantages of order diversification. For the model with two suppliers, we show that low supplier default correlations dampen competition among the suppliers, increasing the equilibrium wholesale prices. Therefore the retailer prefers suppliers with highly correlated default events, despite the loss of diversification benefits. In contrast, the suppliers and the channel prefer defaults that are negatively correlated. However, as the number of suppliers increases, our model predicts that the retailer may be able to take advantage of both competition and diversification.