Sourcing decision with capacity reservation under supply disruption risk
by Kotomichi Matsuno; Jiahua Weng; Xianghe Shao
Asian J. of Management Science and Applications (AJMSA), Vol. 6, No. 1, 2021

Abstract: Over the last decade, more than 50% of organisations in the world have annually experienced a supply disruption such as geopolitical instability and transportation failure. Therefore, it has become crucial for manufacturers to comprehensively evaluate sourcing decisions not only on procurement costs, quality, and delivery but also on disruption risk. Although risk-hedging on supply disruption could be realised with evaluations on suppliers, there are no reduction effects on immense opportunity losses by manufacturers due to supply disruption. Owing to disasters such as Hurricane Katrina 2005, Great East Japan Earthquake 2011, Thailand Flood 2011, and Kumamoto Earthquake 2016, countless manufacturers have suffered from heavy losses in component procurement. In this study, as an opportunity loss mitigation countermeasure, a sourcing decision with capacity reservation (CR) is proposed for manufacturers. The effectiveness of the CR model is discussed by comparing it with the supplier selection and order allocation model without CR by disruption probability and supply demand relationship.

Online publication date: Mon, 25-Oct-2021

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