publication . Other literature type . Article . 2009

Supply Disruptions, Asymmetric Information, and a Backup Production Option

Damian R. Beil; Zhibin (Ben) Yang; Volodymyr Babich; Goker Aydin;
Open Access
  • Published: 01 Feb 2009
  • Publisher: Institute for Operations Research and the Management Sciences (INFORMS)
We study a manufacturer that faces a supplier privileged with private information about supply disruptions. We investigate how risk-management strategies of the manufacturer change and examine whether risk-management tools are more or less valuable in the presence of such asymmetric information. We model a supply chain with one manufacturer and one supplier, in which the supplier's reliability is either high or low and is the supplier's private information. On disruption, the supplier chooses to either pay a penalty to the manufacturer for the shortfall or use backup production to fill the manufacturer's order. Using mechanism design theory, we derive the optima...
ACM Computing Classification System: ComputerApplications_COMPUTERSINOTHERSYSTEMS
free text keywords: Management Science and Operations Research, Strategy and Management, supply risk, mechanism design, contract, nondelivery penalty, Production manager, Operations management, Private information retrieval, Information asymmetry, Economics, Supply chain, Backup, Supplier relationship management, Tool management, Value of information, Industrial organization
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