Better to Bend than to Break: Sharing Supply Risk Using the Supply-Flexibility Contract

2018 ◽  
Author(s):  
Mehdi Hosseinabadi Farahani ◽  
Milind Dawande ◽  
Haresh B. Gurnani ◽  
Ganesh Janakiraman
Keyword(s):  
Supply Risk ◽  
Supply Flexibility

Better to Bend than to Break: Sharing Supply Risk Using the Supply-Flexibility Contract

2020 ◽  
Author(s):  
Mehdi H. Farahani ◽  
Milind Dawande ◽  
Haresh Gurnani ◽  
Ganesh Janakiraman
Keyword(s):  
Supply Chain ◽  
Ad Hoc ◽  
Supply Chain Coordination ◽  
Wholesale Price ◽  
Problem Definition ◽  
Supply Risk ◽  
Supply Source ◽  
Regular Production ◽  
Disruption Risk ◽  
Supply Flexibility

Problem definition: We analyze a contract in which a supplier who is exposed to disruption risk offers a supply-flexibility contract comprising of a wholesale price and a minimum-delivery fraction (“flexibility” fraction) to a buyer facing random demand. The supplier is allowed to deviate below the order quantity by at most the flexibility fraction. The supplier’s regular production is subject to random disruption, but she has access to a reliable expedited supply source at a higher marginal cost. Academic/practical relevance: Despite the prevalence of supply-flexibility contracts in practice, to the best of our knowledge, there is no previous academic literature examining the optimal design of supply-flexibility contracts. As such, the level of flexibility in practice is usually set on an ad-hoc basis, with buyers typically reluctant to share risk with suppliers. Our analysis of supply-flexibility contracts informs practice in two ways: First, using analytically supported arguments, it educates managers on the effects of their decisions on the economic outcomes. Second, it shows that the supply-flexibility contract benefits both the supplier and the buyer, regardless of which player chooses how supply risk is allocated in the supply chain. Methodology: Non-cooperative game theory, non-convex optimization. Results: We derive the supplier-led optimal contract and show that supply chain efficiency improves relative to the price-only contract. More interestingly, even though the buyer lets the supplier decide how the two share supply risk, profits of both the players increase by the introduction of flexibility into the contract. Further, supply flexibility may be even more valuable for the buyer compared with the supplier. Interestingly, the flexibility fraction is not monotone in supplier reliability and a more reliable supplier may even prefer to transfer more risk to the buyer. The robustness of these findings is established on two extensions: one where we study a buyer-led contract (i.e., the buyer chooses the flexibility fraction) and the other where the expedited supply option is available to both the supplier and the buyer. Managerial implications: The supply-flexibility contract is mutually beneficial for both players and yet retains all the advantages of the price-only contract—it is easy to implement, it requires minimal operational and administrative burden, and there is evidence of the use of such contracts in practice. While our focus is not on supply chain coordination, we note that the combination of two mechanisms—the supply-flexibility contract derived in this paper to share supply risk and a buyback contract to share demand risk—yields a coordinating contract.

scholarly journals The Critical Raw Materials Issue between Scarcity, Supply Risk, and Unique Properties

Materials ◽  
2021 ◽  
Vol 14 (8) ◽  
pp. 1826
Author(s):  
Mihaela Girtan ◽  
Antje Wittenberg ◽  
Maria Luisa Grilli ◽  
Daniel P. S. de Oliveira ◽  
Chiara Giosuè ◽  
...  
Keyword(s):  
Scientific Community ◽  
Chemical Elements ◽  
Raw Materials ◽  
The Other ◽  
Innovation Networks ◽  
Supply Risk ◽  
European Cooperation ◽  
Research And Innovation ◽  
The Earth ◽  
Critical Raw Materials

This editorial reports on a thorough analysis of the abundance and scarcity distribution of chemical elements and the minerals they form in the Earth, Sun, and Universe in connection with their number of neutrons and binding energy per nucleon. On one hand, understanding the elements’ formation and their specific properties related to their electronic and nucleonic structure may lead to understanding whether future solutions to replace certain elements or materials for specific technical applications are realistic. On the other hand, finding solutions to the critical availability of some of these elements is an urgent need. Even the analysis of the availability of scarce minerals from European Union sources leads to the suggestion that a wide-ranging approach is essential. These two fundamental assumptions represent also the logical approach that led the European Commission to ask for a multi-disciplinary effort from the scientific community to tackle the challenge of Critical Raw Materials. This editorial is also the story of one of the first fulcrum around which a wide network of material scientists gathered thanks to the support of the funding organization for research and innovation networks, COST (European Cooperation in Science and Technology).

Loss-averse newsvendor problem with supply risk

2016 ◽  
Vol 67 (2) ◽  
pp. 214-228 ◽  
Author(s):  
Lijun Ma ◽  
Weili Xue ◽  
Yingxue Zhao ◽  
Qinghua Zeng
Keyword(s):  
Newsvendor Problem ◽  
Supply Risk

scholarly journals Power supply risk assessment method for relay protection system faults

2016 ◽  
Vol 65 (4) ◽  
pp. 803-814
Author(s):  
Si Tuyou ◽  
Wu Jiekang ◽  
Yuan Weideng ◽  
Du Anan
Keyword(s):  
Power Supply ◽  
Distribution Systems ◽  
Probability Model ◽  
Relay Protection ◽  
Assessment Method ◽  
Protection System ◽  
Supply Risk ◽  
Load Power ◽  
Risk Assessment Method ◽  
Protection Systems

Abstract The influence and the potential risk due to hidden faults of a relay protection system on power supply in distribution systems are paid more and more attention to. A probability analysis method is used to analyse fault characteristics and action mechanism of dominant faults, hidden misoperation and non-operation of the relay protection systems, and failure probability model of relay protection system is constructed and simplified. The effects of dominant faults, hidden misoperation and non-operation of the relay protection systems on the reduced power supply load power are analysed, and a probabilistic model for reduced power supply load power is constructed by three parts corresponding to dominant faults, hidden misoperation and non-operation. A probability calculation method of power supply risk occurrence due to hidden faults of relay protecttion system is proposed considering the fault probability of the relay protection systems, the frequency of the hidden faults occurring in operation period, the reduced power supply load power or load power outage, and the connection mode of the in-lines, out-lines and transformers in a substation. The feasibility and applicability of the proposed method for estimation of risk value probability of the relay protection systems is verified by two studied examples.

scholarly journals Silver supply risk analysis for the solar sector

2014 ◽  
Vol 69 ◽  
pp. 157-165 ◽  
Author(s):  
Leena Grandell ◽  
Andrea Thorenz
Keyword(s):  
Risk Analysis ◽  
Supply Risk

scholarly journals Fruitful Market Mediation

2012 ◽  
pp. 80-96
Author(s):  
Lincoln Wood
Keyword(s):  
Information Sharing ◽  
Cost Sharing ◽  
Source Material ◽  
Supply Risk ◽  
Export Markets ◽  
New Markets ◽  
Risk Pooling ◽  
Significant Challenge ◽  
Primary Sector ◽  
Opportunistic Behaviour

Working in the primary sector, FruitCom is a grouping of exporters who banded together in order to break into and develop new markets. While they aim at cooperating and coordinating their activities to support actions within these new markets, the firms involved still compete in other, more established, export markets. This “coopetitive” relationship allows the group many benefits related to their ability to source material and ensure a more consistent supply, but opens them up to challenges, such as dealing with opportunistic behaviour by other members. This case outlines the background of the firms and introduces the most recent significant challenge they face. The implications of their structure are discussed with emphasis on supply, risk pooling, information sharing, and revenue- and cost-sharing. The successes gained by the group are not without sacrifice; the challenges of their operations are discussed with stress on the most recent and perhaps the most significant challenge yet.

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