Lecture on: Supply Side Story: Risks, Guarantees, Competition and Information Asymmetry

Next Friday, April 30, 2010, the last Speaker Seminar in Operations Research / Management Sciences of the Spring semester will take place. We are delighted to be hosting Professor Mehmet Gumus, of the Desautels Faculty of Management, McGill University, in Montreal, Quebec, Canada, at the Isenberg School at UMass Amherst.

Biography: Dr. Mehmet Gumus is an Assistant Professor of Operations Management at the Desautels Faculty of Management at McGill University. He joined McGill University in 2007. He received his PhD from the University of California at Berkeley in Industrial Engineering and Operations Research. In his research, Dr. Mehmet Gumus develops and analyzes mathematical models related to supply chain management, dynamic pricing and revenue management, supply disruption, and risk management. He is also interested in modeling the strategic customer behavior and how it affects the firm's profit. He has worked with a number of companies including Pratt & Whitney, and Navis LLC.

PRESENTATION TITLE: "Supply Side Story: Risks, Guarantees, Competition and Information Asymmetry."

Abstract: The risk of supply disruption has increased as firms have started procuring more from cheaper, but unreliable, suppliers. In this paper, we model a supply chain comprising a single buyer and two suppliers who compete for the buyer's order. One of the suppliers is more expensive but reliable, while the other (unreliable) one is cheaper but faces risk of supply disruption. The risk level of the unreliable supplier might be private information for her and this lack of visibility further contributes to the buyer's purchasing risk. In such settings, the unreliable supplier often offers a price and quantity (availability) guarantee to the buyer as part of her contract terms. Our objective is to understand the underlying motivation for such a guarantee offer and the effects such an offer have on the performance of the chain partners. We characterize the equilibrium contracts for the two suppliers, and the buyer's procurement strategy for both symmetric and asymmetric information cases. Our analysis indicates that supply guarantee plays two important roles. First, it allows the unreliable supplier to better compete against the reliable one by providing supply assurance to the buyer. More importantly, when information asymmetry risk is high, a guarantee offer enables the unreliable supplier to credibly signal her true supply risk to the buyer improving the visibility in the chain. This additional role causes guarantees to be a more usable strategy in an asymmetric information setting (compared to a symmetric one) from the viewpoint of the unreliable supplier. However, from the buyer's perspective, guarantee provision in an asymmetric setting might reduce the competition between the suppliers resulting in higher contract prices, and, consequently, higher costs for him (and higher profits for the reliable supplier)

Date: Friday, April 30, 2010
Time: 11:00AM - Noon
Place: Room ISOM 112

The announcement for this talk can be found at:
http://supernet.som.umass.edu/informs/speakernew.html

This talk will conclude twelve semesters of this Speaker Series, which the UMass Amherst INFORMS Student Chapter has helped me to organize.

INFORMS Student Chapter website:
http://student.som.umass.edu/informs/