Real options approach to evaluate postponement as supply chain disruptions mitigation strategy

Nunzia Carbonara and Roberta Pellegrino

International Journal of Production Research, 2018, vol. 56, issue 15, 5249-5271

Abstract: The purpose of this paper is to assess the value of postponement as strategy for mitigating supply chain disruptions. To accomplish this objective, we develop a real option computational model that quantifies the value of postponement in mitigating both supply and demand disruptions by taking into account the value of managerial flexibility to decide whether exploiting or not the strategy, if and when disruptions occur, and whenever product differentiation proves valuable based on information available at that time. Numerical experiments show the importance of incorporating an option valuation method when pricing the value of postponement. This ensures managers implement postponement only when it is valuable, thus avoiding burdening the company with its initial sunk costs. By modelling the postponement implementation under different conditions, we identify the situations in which postponement performs better as supply chain disruptions mitigation strategy. We derive the operational configurations, in terms of decoupling point position, and external conditions, in terms of riskiness of the environment, which make the postponement an effective mitigation strategy.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://hdl.handle.net/10.1080/00207543.2017.1403663 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:tprsxx:v:56:y:2018:i:15:p:5249-5271

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/TPRS20

DOI: 10.1080/00207543.2017.1403663

Access Statistics for this article

International Journal of Production Research is currently edited by Professor A. Dolgui

More articles in International Journal of Production Research from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().