Analysis of an options contract in a dual sourcing supply chain under disruption risk

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2012
Köle, Hüseyin
In this study, value of demand information and the importance of option contracts are investigated for a supply chain consisting of a buyer and two suppliers in a single period setting. One supplier is cheap but prone to disruptions whereas the other one is perfectly reliable but expensive. At the beginning of the period, buyer orders from the unreliable supplier and reserves from the reliable supplier through a contract that gives buyer an option to use reserved units after getting disruption information of first supplier. We introduce three models which differ in terms of the level of information available when the ordering decisions are made. In the full information model, the options are exercised after getting disruption and demand information; in the partial information model, the options are exercised after getting disruption information before demand information. In the no information model, there is no options contract and units are ordered from the reliable supplier when buyer has no information about demand and disruption. Through the analysis of these models, we explore the value of advance demand and disruption information in the presence of an options contract.

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Citation Formats
H. Köle, “Analysis of an options contract in a dual sourcing supply chain under disruption risk,” M.S. - Master of Science, Middle East Technical University, 2012.