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Article: A portfolio approach to managing procurement risk using multi-stage stochastic programming
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TitleA portfolio approach to managing procurement risk using multi-stage stochastic programming
 
AuthorsShi, Y2 1
Wu, F3
Chu, LK1
Sculli, D1
Xu, YH1
 
Keywordsportfolio procurement approach
procurement risk
risk mitigation
stochastic programming
 
Issue Date2011
 
PublisherPalgrave Macmillan Ltd. The Journal's web site is located at http://www.palgrave-journals.com/jors/index.html
 
CitationJournal Of The Operational Research Society, 2011, v. 62 n. 11, p. 1958-1970 [How to Cite?]
DOI: http://dx.doi.org/10.1057/jors.2010.149
 
AbstractProcurement is a critical supply chain management function that is susceptible to risk, due mainly to uncertain customer demand and purchase price volatility. A procurement approach in the form of a portfolio that incorporates the common procurement means is proposed. Such means include long-term contracts, spot procurements and option-based supply contracts. The objective is to explore possible synergies among the various procurement means, and so be able to produce optimal or near optimal results in profit while mitigating risk. The implementation of the portfolio approach is based on a multi-stage stochastic programming model in which replenishment decisions are made at various stages along a time horizon, with replenishment quantities being determined by simultaneously considering the stochastic demand and the price volatility of the spot market. The model attempts to minimise the risk exposure of procurement decisions measured as conditional value-at-risk. Numerical experiments to test the effectiveness of the proposed model are performed using demand data from a large air conditioner manufacturer in China and price volatility data from the Shanghai steel market. The results indicate that the proposed model can fairly reliably outperform other approaches, especially when either the demand and/or prices exhibit significant variability. © 2011 Operational Research Society Ltd. All rights reserved.
 
ISSN0160-5682
2013 Impact Factor: 0.911
 
DOIhttp://dx.doi.org/10.1057/jors.2010.149
 
ISI Accession Number IDWOS:000295899100006
 
ReferencesReferences in Scopus
 
DC FieldValue
dc.contributor.authorShi, Y
 
dc.contributor.authorWu, F
 
dc.contributor.authorChu, LK
 
dc.contributor.authorSculli, D
 
dc.contributor.authorXu, YH
 
dc.date.accessioned2012-02-03T06:12:55Z
 
dc.date.available2012-02-03T06:12:55Z
 
dc.date.issued2011
 
dc.description.abstractProcurement is a critical supply chain management function that is susceptible to risk, due mainly to uncertain customer demand and purchase price volatility. A procurement approach in the form of a portfolio that incorporates the common procurement means is proposed. Such means include long-term contracts, spot procurements and option-based supply contracts. The objective is to explore possible synergies among the various procurement means, and so be able to produce optimal or near optimal results in profit while mitigating risk. The implementation of the portfolio approach is based on a multi-stage stochastic programming model in which replenishment decisions are made at various stages along a time horizon, with replenishment quantities being determined by simultaneously considering the stochastic demand and the price volatility of the spot market. The model attempts to minimise the risk exposure of procurement decisions measured as conditional value-at-risk. Numerical experiments to test the effectiveness of the proposed model are performed using demand data from a large air conditioner manufacturer in China and price volatility data from the Shanghai steel market. The results indicate that the proposed model can fairly reliably outperform other approaches, especially when either the demand and/or prices exhibit significant variability. © 2011 Operational Research Society Ltd. All rights reserved.
 
dc.description.natureLink_to_subscribed_fulltext
 
dc.identifier.citationJournal Of The Operational Research Society, 2011, v. 62 n. 11, p. 1958-1970 [How to Cite?]
DOI: http://dx.doi.org/10.1057/jors.2010.149
 
dc.identifier.doihttp://dx.doi.org/10.1057/jors.2010.149
 
dc.identifier.epage1970
 
dc.identifier.hkuros198402
 
dc.identifier.isiWOS:000295899100006
 
dc.identifier.issn0160-5682
2013 Impact Factor: 0.911
 
dc.identifier.issue11
 
dc.identifier.scopuseid_2-s2.0-80053497109
 
dc.identifier.spage1958
 
dc.identifier.urihttp://hdl.handle.net/10722/144533
 
dc.identifier.volume62
 
dc.languageeng
 
dc.publisherPalgrave Macmillan Ltd. The Journal's web site is located at http://www.palgrave-journals.com/jors/index.html
 
dc.publisher.placeUnited Kingdom
 
dc.relation.ispartofJournal of the Operational Research Society
 
dc.relation.referencesReferences in Scopus
 
dc.rightsJournal of the Operational Research Society. Copyright © Palgrave Macmillan Ltd.
 
dc.subjectportfolio procurement approach
 
dc.subjectprocurement risk
 
dc.subjectrisk mitigation
 
dc.subjectstochastic programming
 
dc.titleA portfolio approach to managing procurement risk using multi-stage stochastic programming
 
dc.typeArticle
 
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Author Affiliations
  1. The University of Hong Kong
  2. South China University of Technology
  3. Xi'an Jiaotong University