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Sourcing under incomplete information and negative capacity-cost correlation

Author

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  • Tarun Jain

    (Indian Institute of Management Bangalore, Bangalore, India)

  • Jishnu Hazra

    (Indian Institute of Management Bangalore, Bangalore, India)

Abstract

We study a sourcing problem where a buyer reserves capacity from a set of suppliers. The suppliers have finite capacity and their unit production cost is a decreasing function of their capacity, implying scale economies. The capacity of each supplier and therefore the cost is his private information. The buyer and other suppliers only know the probability distribution of the supplier’s capacity. The buyer’s demand is random and she has to decide how much capacity to reserve in advance from a subset of suppliers and how much to source from marketplace. In this study we determine the buyer’s optimum reservation quantity and the size of the supply base. We find the presence of such capacity cost correlation leads to supply base reduction.

Suggested Citation

  • Tarun Jain & Jishnu Hazra, 2016. "Sourcing under incomplete information and negative capacity-cost correlation," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 67(3), pages 437-449, March.
    • Handle: RePEc:pal:jorsoc:v:67:y:2016:i:3:p:437-449
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    Citations

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    Cited by:

    1. Papachristos, Ioannis & Pandelis, Dimitrios G., 2022. "Newsvendor models with random supply capacity and backup sourcing," European Journal of Operational Research, Elsevier, vol. 303(3), pages 1231-1243.
    2. Basu, Arnab & Jain, Tarun & Hazra, Jishnu, 2018. "Supplier selection under production learning and process improvements," International Journal of Production Economics, Elsevier, vol. 204(C), pages 411-420.
    3. Tarun Jain & Jishnu Hazra, 2019. "“On-demand” pricing and capacity management in cloud computing," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 18(3), pages 228-246, June.
    4. Svoboda, Josef & Minner, Stefan & Yao, Man, 2021. "Typology and literature review on multiple supplier inventory control models," European Journal of Operational Research, Elsevier, vol. 293(1), pages 1-23.
    5. Jain, Tarun & Hazra, Jishnu, 2017. "Sourcing strategies under agglomeration economies, capacity risks and retail competition," International Journal of Production Economics, Elsevier, vol. 191(C), pages 311-322.
    6. Li, Jianbin & Luo, Xiaomeng & Wang, Qifei & Zhou, Weihua, 2021. "Supply chain coordination through capacity reservation contract and quantity flexibility contract," Omega, Elsevier, vol. 99(C).
    7. Jain, Tarun & Hazra, Jishnu, 2017. "Dual sourcing under suppliers' capacity investments," International Journal of Production Economics, Elsevier, vol. 183(PA), pages 103-115.
    8. Tarun Jain & Jishnu Hazra, 2019. "Vendor’s Strategic Investments Under IT Outsourcing Competition," Service Science, INFORMS, vol. 11(1), pages 16-39, March.
    9. Mahadevan, B. & Hazra, Jishnu & Jain, Tarun, 2017. "Services outsourcing under asymmetric cost information," European Journal of Operational Research, Elsevier, vol. 257(2), pages 456-467.

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