Seminar: Decentralized Supply Risk Management: Asymmetric Information, Diversification, Competition, and Procurement Service Providers


Department of Systems Engineering and Engineering Management
The Chinese University of Hong Kong

Title: Decentralized Supply Risk Management: Asymmetric Information, Diversification, Competition, and Procurement Service Providers

Speaker: Prof. Volodymyr Babich
               McDonough School of Business
               Georgetown University
Date:  20 August ,2012

Time: 4:30 p.m. - 5:30 p.m.

Venue:  Room 513
             William M.W. Mong Engineering Building
             (Engineering Building Complex Phase 2)


In this talk, I will focus on a manufacturer’s strategic use of a dual-sourcing option, when facing suppliers, possessing private information about their disruption likelihood. Having derived the manufacturer’s optimal procurement contract, I will show that the optimal contract can be interpreted as the manufacturer choosing between diversification and competition benefits. Better information increases diversification benefits and decreases competition benefits. Therefore, with better information the manufacturer is more inclined to diversify. Interestingly, better information may increase or decrease the value of the dual-sourcing option, depending on the size of the manufacturer’s revenue (with large per unit revenue the attractiveness of diversification makes information and a dual-sourcing option complements). Surprisingly, under asymmetric information, the manufacturer may cease to diversify in reaction to eroding supply base reliability in order to leverage competition, while it would do just the opposite under symmetric information. Finally, we will look into the effect of codependence between supply disruptions. Lower codependence prompts the manufacturer to rely less on competition. Because competition keeps the information costs in check, a reduction in supplier codependence increases the manufacturer’s value of information. Therefore, strategic actions to reduce codependence between supplier disruptions should not be seen as a substitute for learning about suppliers’ reliabilities.   In the talk I will also reflect on general challenges and opportunities in supply risk management arising from the decentralized nature of supply chains and highlight the benefits and the costs of using procurement service providers who have superior information about suppliers’ reliabilities.



Volodymyr Babich is an associate professor of Operations and Information Management at the McDonough School of Business, Georgetown University.  He earned his Ph.D. in Operations Research from Case Western Reserve University, Weatherhead School of Management, in 2003.  He also holds M.S. degrees in Management Science and Mathematics, both from Case Western Reserve University, as well as a B.S. in Applied Mathematics from Kiev Polytechnic Institute.  Prior to joining Georgetown University, he was an assistant professor at the University of Michigan, Ann Arbor, Industrial and Operations Engineering department.  His research interests are the interface of operations and finance, supply risk management, supply chain management, stochastic modeling, and risk management.  His research has been supported by grants from the National Science Foundation, University of Michigan, and industry.  His papers have been published in top-tier Operations Research, Operations Management, and Industrial Engineering journals.  Volodymyr Babich is a member of editorial boards for Management Science and Production and Operations Management.  He is an active member of INFORMS and the MSOM society, and he was the Founding Chair of the MSOM Special Interest Group on the “Interface of Finance, Operations, and Risk Management (iFORM)”.


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Host : Prof. Sean X. Zhou
Tel : (852) 3943-8336

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Enquiries :  Prof. Nan Chen or Prof. Sean X. Zhou
                  Department of Systems Engineering and Engineering Management

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Monday, August 20, 2012 - 08:30 to 09:30