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An efficient entropy-based stopping rule for mitigating risk factors in supply nets

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  • Herbon, Avi
  • Tsadikovich, Dmitry

Abstract

Potential supply-net risk factors include capacity issues, currency volatility, design changes, frequent changes in tax regulations, unsafe information systems, and port shutdowns. Such risk factors make it challenging for decision makers to design efficient risk-management procedures and minimize the operational costs associated with mitigating these risks. Since complete information about all risks is generally not available, we utilize an axiomatic approach, based on the notion of entropy, to develop an efficient solution procedure. The strategy involves developing a stopping rule that enables the decision maker to decide online whether or not to continue investing in the acquisition of information about risk factors. The problem is formulated as a non-linear integer optimization model. We develop sufficient conditions for the entropy function such that a unique global solution is obtained.

Suggested Citation

  • Herbon, Avi & Tsadikovich, Dmitry, 2023. "An efficient entropy-based stopping rule for mitigating risk factors in supply nets," International Journal of Production Economics, Elsevier, vol. 260(C).
    • Handle: RePEc:eee:proeco:v:260:y:2023:i:c:s0925527323000695
    DOI: 10.1016/j.ijpe.2023.108837
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    References listed on IDEAS

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