Managing Unreliable Suppliers: Newsvendor Problem under Disruption Risk
Assoc. Prof. Dr. İsmail S. Bakal
This study examines the newsvendor problem with unreliable suppliers, focusing on risk-neutral
and risk-averse decision-making strategies. We analyze disruption risk in a multi-sourcing
setting, comparing all-or-nothing suppliers to fractional delivery models, where a portion of the
order is guaranteed even in failure scenarios. For the risk-neutral case, we show that prioritizing
suppliers based on procurement cost leads to an optimal solution, and fractional yield guarantees
significantly affect supplier selection. For the risk-averse case, we formulate the mean-variance
approaches. When stockout penalties exist, minimizing weighted variance results in an optimal
solution where all suppliers are included, regardless of their reliability. We show that even for
risk-averse decision-makers, suppliers should still be selected based on procurement cost, while
order quantities are adjusted according to supplier reliability. Finally, contrary to prior literature,
we demonstrate that a risk-neutral newsvendor may order less than a risk-averse one from the
unreliable supplier when stockout costs are significant.
This study is a joint work with Yasemin Merzifonluoğlu, Marie Versteeg and Arnout den
Hollander from the Department of Econometrics and Operations Research at Tilburg University,
The Netherlands.
Short Bio
İsmail S. Bakal is an associate professor in the Department of Industrial Engineering, Middle
East Technical University. He got his PhD degree in Industrial and Systems Engineering from
University of Florida, his MSc and BSc degrees in Industrial Engineering from Middle East
Technical University. His research interests are broadly in inventory planning and supply chain
management, with particular interest in closed loop supply chains, disruption risk, and
coordination and contracts in supply chains.
Venue
Friday, April 18th, 2025, 4:00 pm
IE Building, Halim Doğrusöz Auditorium (Ground Floor-03)