Managing Risks of Supply-Chain Disruptions: Dual ... - CiteSeerX

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what will happen. To hedge this demand uncertainty, the firm can delay its decision to observechanges over time and make the right decision at the right time. In the real option theory, this iscalled a delay option. Figure 6.4 points out the value that is added by delaying the decision to takea second supplier.Figure 6.4: Added value thanks to delay optionIf A < I < C , the firm should delay its decision to take a second supplier and make new supplyarrangements if the demand increases enough. On the contrary, if demand decreases, investing in anew supply contract with a 2 nd supplier would cost too much comparing to the benefits of havingthis extra supplier, and it is better to stick to the main supplier. Figure 6.5 illustrates this concept.Also the break-even, that represents the maximum investment that is allowed to take a secondsupplier, differs with the delay option. As seen on figure 12, if the firm decides to change itsstrategy to dual sourcing immediately (i.e. “Without delay option”) the break-even is B, whereas if64
the company decides according to demand evolution (i.e. “With the delay option”), the break-evenbecomes C that is higher: delaying the decision allows a more important investment.Figure 6.5: Delay Option - the decision to change to dual sourcing depends on demand evolution6.4 Management over timeThe company needs to adapt its sourcing strategy over time. The value of dynamic managementhas been proven in the last section; the delay option permits to adapt to demand evolution andincrease the value of the dual sourcing process. Moreover, many other parameters may evolve suchas the prices of local supplier or the probability of disruption. According to the changes, the firmneeds to review the adequacy of its current strategy and eventually change it. In that respect, it isvery important that the firm monitor the evolution of the different drivers. Sensitivity analyses areessential as they permit to determine which parameters are to be followed with most attention.65
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Managing Risks of Supply-Chain Disr
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AcknowledgementsI would like to exp
Page 6 and 7:
4.2.5 Conclusions .................
Page 8 and 9:
List of FiguresFigure 1.1: Strategy
Page 11 and 12:
Chapter 1Introduction.Modern supply
Page 13 and 14: - Levels 2 and 3--between these two
Page 15 and 16: 5. In terms of implementation, Forr
Page 17 and 18: Some articles focus precisely on di
Page 19 and 20: 2.3 Secure the Supply-ChainThere ar
Page 21 and 22: 1) Firms need to build a resilient
Page 23 and 24: at ports and airports and along the
Page 25 and 26: 2.6 Conclusions- Increase the secur
Page 27 and 28: The most adapted approach (single V
Page 29 and 30: suppliers’. The main objective of
Page 31 and 32: Some people continue to think that
Page 33 and 34: For example, there is no market for
Page 35 and 36: 4.1.3 Option ValueJust like a finan
Page 37 and 38: - I0: initial investmentThe problem
Page 39 and 40: Re plicating portfolio in the up st
Page 41 and 42: Let’s consider a portfolio compri
Page 43 and 44: The differential equation is quite
Page 45 and 46: value of the cash flows of the proj
Page 47 and 48: update their option management stra
Page 49 and 50: Chapter 5OptionModeling Dual-Sourci
Page 52 and 53: We will describe the firm’s curre
Page 54 and 55: investment costs are denotedIMainSu
Page 56 and 57: 5.4 Programming on MatlabTo solve t
Page 58 and 59: Chapter 6Results of the ModelThis c
Page 60 and 61: uses the main supplier its profits
Page 62 and 63: drivers - in particular at the time
Page 66 and 67: 6.5 Conclusions- Real options allow
Page 68 and 69: market share from its competitor.7.
Page 70 and 71: = 0.99 * ($100) + 0.01* (-$200)= $9
Page 72 and 73: Table 7.1: Assumption on Parameter
Page 74 and 75: 7.2.4 Exploit at maximum real optio
Page 76 and 77: developed “ a general simulation
Page 78 and 79: (13) Lee, H.L., Wolfe, M. (2003),
Page 80 and 81: and Supply Management Course.(38) Z
Page 82 and 83: to reserve for the future, by maxim
Page 84 and 85: APPENDIX B: PARAMETER VALUES USED T
Page 86 and 87: normal or in disruption.The program
Page 88 and 89: -----------------------------------
Page 90 and 91: -----------------------------------
Page 92 and 93: % Probability of going from (m,k,j)
Page 94 and 95: -----------------------------------
Page 96 and 97: -----------------------------------
Page 98 and 99: elsevalue.DecOneNormal=3;end-------
Page 100 and 101: -----------------------------------
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