The value of information on supply risk under random yields

Taesu Cheong and Sang Hwa Song

Transportation Research Part E: Logistics and Transportation Review, 2013, vol. 60, issue C, 27-38

Abstract: For companies facing challenge of managing unreliable supply sources, one of the operational goals is to increase the overall profit by improving performance of uncertain supply. We here develop stochastic decision frameworks which evaluate necessary information about uncertainties and help newsvendor and suppliers to enhance supply reliability. We first analyze the newsvendor’s purchasing decision under supply uncertainty and the derived decision framework is used to identify stochastic dominance conditions. We found that partial supply risk information is sufficient to determine regular ordering quantity, but to improve the overall profit, it is important to gather more information about stochastic dominance conditions.

Keywords: Product shrinkage; Value of information; Supply risk; Newsvendor problem; Supply chain management (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (5)

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DOI: 10.1016/j.tre.2013.09.006

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