An evaluation method of reduced procurement risks by decentralized ordering in supply chain

Abstract

In supply chain, catastrophic disasters such as earthquakes may prevent procurements from suppliers, which causes losses in retailers. Decentralizing orders and urgent stocks can reduce the losses, but cost the retailer. And, the losses by the catastrophic disasters are uncertain. In order to support planning of decentralizing orders and urgent stocks, we propose the evaluation method of procurement risks that are Conditional Value at Risk (CVaR) of the losses, which are often applied for a rare event causing a heavy loss. Because the uncertain procurement risk is reduced in return for the cost, the proposed method evaluates the decentralizing orders with the urgent stock based on real option approach.