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MANAGEMENT SCIENCE Vol. 55, No. 2, February 2009, pp. 192209
 

Summary: MANAGEMENT SCIENCE
Vol. 55, No. 2, February 2009, pp. 192­209
issn 0025-1909 eissn 1526-5501 09 5502 0192
informs®
doi 10.1287/mnsc.1080.0943
© 2009 INFORMS
Supply Disruptions, Asymmetric Information,
and a Backup Production Option
Zhibin (Ben) Yang, Göker Aydin, Volodymyr Babich
Department of Industrial and Operations Engineering, University of Michigan, Ann Arbor, Michigan 48109
{zhibiny@umich.edu, ayding@umich.edu, babich@umich.edu}
Damian R. Beil
Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109,
dbeil@bus.umich.edu
We study a manufacturer that faces a supplier privileged with private information about supply disruptions.
We investigate how risk-management strategies of the manufacturer change and examine whether risk-
management tools are more or less valuable in the presence of such asymmetric information. We model a supply
chain with one manufacturer and one supplier, in which the supplier's reliability is either high or low and is the
supplier's private information. On disruption, the supplier chooses to either pay a penalty to the manufacturer
for the shortfall or use backup production to fill the manufacturer's order. Using mechanism design theory, we

  

Source: Aydin, Goker - Department of Operations and Decision Technologies, Indiana University Bloomington

 

Collections: Engineering