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Article: A portfolio approach to managing procurement risk using multi-stage stochastic programming

TitleA portfolio approach to managing procurement risk using multi-stage stochastic programming
Authors
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
Citation
Journal Of The Operational Research Society, 2011, v. 62 n. 11, p. 1958-1970 How to Cite?
Abstract
Procurement 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.
Persistent Identifierhttp://hdl.handle.net/10722/144533
ISSN
2013 Impact Factor: 0.911
ISI Accession Number ID
References

 

Author Affiliations
  1. The University of Hong Kong
  2. South China University of Technology
  3. Xi'an Jiaotong University
DC FieldValueLanguage
dc.contributor.authorShi, Yen_HK
dc.contributor.authorWu, Fen_HK
dc.contributor.authorChu, LKen_HK
dc.contributor.authorSculli, Den_HK
dc.contributor.authorXu, YHen_HK
dc.date.accessioned2012-02-03T06:12:55Z-
dc.date.available2012-02-03T06:12:55Z-
dc.date.issued2011en_HK
dc.identifier.citationJournal Of The Operational Research Society, 2011, v. 62 n. 11, p. 1958-1970en_HK
dc.identifier.issn0160-5682en_HK
dc.identifier.urihttp://hdl.handle.net/10722/144533-
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.en_HK
dc.languageengen_US
dc.publisherPalgrave Macmillan Ltd. The Journal's web site is located at http://www.palgrave-journals.com/jors/index.htmlen_HK
dc.relation.ispartofJournal of the Operational Research Societyen_HK
dc.rightsJournal of the Operational Research Society. Copyright © Palgrave Macmillan Ltd.-
dc.subjectportfolio procurement approachen_HK
dc.subjectprocurement risken_HK
dc.subjectrisk mitigationen_HK
dc.subjectstochastic programmingen_HK
dc.titleA portfolio approach to managing procurement risk using multi-stage stochastic programmingen_HK
dc.typeArticleen_HK
dc.identifier.emailChu, LK:lkchu@hkucc.hku.hken_HK
dc.identifier.authorityChu, LK=rp00113en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1057/jors.2010.149en_HK
dc.identifier.scopuseid_2-s2.0-80053497109en_HK
dc.identifier.hkuros198402en_US
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-80053497109&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume62en_HK
dc.identifier.issue11en_HK
dc.identifier.spage1958en_HK
dc.identifier.epage1970en_HK
dc.identifier.isiWOS:000295899100006-
dc.publisher.placeUnited Kingdomen_HK
dc.identifier.scopusauthoridShi, Y=16508014700en_HK
dc.identifier.scopusauthoridWu, F=53867635000en_HK
dc.identifier.scopusauthoridChu, LK=7202233520en_HK
dc.identifier.scopusauthoridSculli, D=7003917046en_HK
dc.identifier.scopusauthoridXu, YH=53867505300en_HK

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