In presence of a high uncertainty level, having the possibility (given by a multiple source strategy) to switch an order to another supplier, already contracted, if the main one has had a default can be very valuable in order to mitigate and manage the risk in purchasing. Nevertheless, multi-source procurement implies a greater cost than single-source one. Thus, a correct evaluation of its (uncertain) benefits is needed to justify the added costs. As traditional "static" techniques often fail in this analysis, this paper uses an approach based on Real Options Theory to value the (supplier switching) option given by multiple sourcing strategy. A quantitative model based on the Monte Carlo simulation was developed. This technique is able to take several uncertainty sources into consideration and, therefore. overcome the limit of traditional methods used in stable and "deterministic" environments.

Risk Management in Procurement: A Selection of Sourcing Strategy Based on Real Option / Costantino, Nicola; Pellegrino, Roberta. - STAMPA. - (2008), pp. 243-248. (Intervento presentato al convegno 12th World Multi-Conference on Systemics, Cybernetics and Informatics, WMSCI 2008; 14th International Conference on Information Systems Analysis and Synthesis, ISAS 2008 tenutosi a Orlando, FL nel June29-July 2, 2008).

Risk Management in Procurement: A Selection of Sourcing Strategy Based on Real Option

Costantino, Nicola;Pellegrino, Roberta
2008-01-01

Abstract

In presence of a high uncertainty level, having the possibility (given by a multiple source strategy) to switch an order to another supplier, already contracted, if the main one has had a default can be very valuable in order to mitigate and manage the risk in purchasing. Nevertheless, multi-source procurement implies a greater cost than single-source one. Thus, a correct evaluation of its (uncertain) benefits is needed to justify the added costs. As traditional "static" techniques often fail in this analysis, this paper uses an approach based on Real Options Theory to value the (supplier switching) option given by multiple sourcing strategy. A quantitative model based on the Monte Carlo simulation was developed. This technique is able to take several uncertainty sources into consideration and, therefore. overcome the limit of traditional methods used in stable and "deterministic" environments.
2008
12th World Multi-Conference on Systemics, Cybernetics and Informatics, WMSCI 2008; 14th International Conference on Information Systems Analysis and Synthesis, ISAS 2008
978-1-934272-36-7
Risk Management in Procurement: A Selection of Sourcing Strategy Based on Real Option / Costantino, Nicola; Pellegrino, Roberta. - STAMPA. - (2008), pp. 243-248. (Intervento presentato al convegno 12th World Multi-Conference on Systemics, Cybernetics and Informatics, WMSCI 2008; 14th International Conference on Information Systems Analysis and Synthesis, ISAS 2008 tenutosi a Orlando, FL nel June29-July 2, 2008).
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11589/19581
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