 Supplies from developing countries: Optimal order quantities under loss risksJayavel Sounderpandian, Sameer Prasad and Manu Madan Omega, 2008, vol. 36, issue 1, 122-130 Abstract: When raw material suppliers of a global supply chain are situated in developing countries, not only will there be long lead times but there could also be a possibility of material losses in transit. The magnitude of the losses will be uncertain and can be significant. We consider the optimization of order quantity decisions in such situations. The long lead times imply that we need to take into account the uncertainty in finished goods demands for which the raw materials are to be ordered. The order quantities have to be optimized carefully as they determine the "real options" that become available later in production plans. Using data from the plywood industry and using stochastic programming we demonstrate a method for solving such problems. The method combines simulation and optimization. An interesting observation we make is that the optimal order quantity of a material need not be monotonic in expected loss of that material. In addition, we offer explanations as to why the expected loss need not be monotonic. Keywords: Stochastic; programming; Optimization; Production; planning; and; control; Global; supply; chains (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jomega:v:36:y:2008:i:1:p:122-130 Ordering information: This journal article can be ordered from Access Statistics for this article Omega is currently edited by B. Lev More articles in Omega from Elsevier |
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