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Supply Disruptions and Procurement Contracting

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Handbook of Information Exchange in Supply Chain Management

Part of the book series: Springer Series in Supply Chain Management ((SSSCM,volume 5))

Abstract

We discuss challenges that arise in practice of procurement contracting from supply disruptions and suggest how the theory should be adjusted to address these challenges. The challenges range from the loss of contract power when unexpected shocks occur to the need for contracts to govern joint risk management efforts of buyers and sellers. We highlight which traditional contracting modeling assumptions need to be reexamined and how our intuition based on the classical results might change. We point out a new direction of impactful research—coordination of supply risk management efforts among firms.

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Notes

  1. 1.

    The official prize title is “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel”.

  2. 2.

    This list includes: Jean Tirole, Peter A. Diamond, Oliver E. Williamson, Leonid Hurwicz, Eric S. Maskin, Roger B. Myerson, Robert J. Aumann, Thomas C. Schelling, George A. Akerlof, A. Michael Spence, Joseph E. Stiglitz, James A. Mirrlees, William Vickrey, and for the contributions to the game theory John C. Harsanyi, John F. Nash Jr., and Reinhard Selten.

  3. 3.

    For example, Tsay et al. (1999), Graves and de Kok (2003), Simchi-Levi et al. (2004), and the references therein.

  4. 4.

    Earlier work on random yield management falls into this category, see review article by Yano and Lee (1995). More recently, a number of papers on supply disruptions and the value of such strategies as diversification, backup production, inventory, insurance have appeared. See review articles and chapters by Tang (2006), Tomlin and Wang (2011), Snyder et al. (2012).

  5. 5.

    For example, see the review chapter by Aydin et al. (2011) and papers by Yang et al. (2009, 2012), Babich and Tang (2012), Wadecki et al. (2012), Tang and Kouvelis (2011), Gümüş et al. (2012), Chaturvedi and Martínez-de Albéniz (2011), Yang and Babich (2015).

  6. 6.

    Source: http://www.gafta.com/contracts.

  7. 7.

    Source: http://www.scrlc.com/articles/SCRLCMaturityModel-2April2013.xlsx.

  8. 8.

    A synthesis of economics literature is given in Bolton and Dewatripont (2005) and the same for OM literature is in Cachon (2003).

  9. 9.

    Such condition ensures that the buyer orders the system’s optimal quantity.

  10. 10.

    For example, refer to the model considered in Sect. 2.1 of Laffont and Martimort (2002).

  11. 11.

    Adapted from Proposition 1 of Yang et al. (2009).

  12. 12.

    The results in this table is obtained by applying \(b = \infty\) to Proposition 2 of Yang et al. (2009).

  13. 13.

    The results can be derived by applying \(b = \infty\) and c L  = c H  = c to Proposition 3 of Yang et al. (2009).

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Authors and Affiliations

  1. McDonough School of Business, Georgetown University, Washington, DC, 20057, USA

    Volodymyr Babich

  2. Lundquist College of Business, University of Oregon, Eugene, OR, 97403, USA

    Zhibin (Ben) Yang

Authors
  1. Volodymyr Babich
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  2. Zhibin (Ben) Yang
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Correspondence to Volodymyr Babich .

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Editors and Affiliations

  1. Hong Kong University of Science and Technology, Kowloon, Hong Kong

    Albert Y. Ha

  2. University of California, Los Angeles, California, USA

    Christopher S. Tang

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Babich, V., Yang, Z. (2017). Supply Disruptions and Procurement Contracting. In: Ha, A., Tang, C. (eds) Handbook of Information Exchange in Supply Chain Management. Springer Series in Supply Chain Management, vol 5. Springer, Cham. https://doi.org/10.1007/978-3-319-32441-8_8

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