Sourcing flexibility with uncertain costs.

Producció científica: Contribució a revistaArticleRecercaAvaluat per experts

3 Cites (Scopus)

Resum

This paper proposes a real-options model in which a client firm can reversibly choose the mode of supply between outsourcing and in-house production. The state variable of the model is defined as the difference between the current operational cost and the alternative one, and is assumed to evolve according to an arithmetic Brownian motion. The model is simple and flexible, and can encompass different situations. The effect of reversibly choosing the mode of supply (or full sourcing flexibility) is far from negligible: our numerical illustrations suggest that it substantially increases the option values over the situation with partial flexibility (about 15%–20% for a typical parameter configuration); the expected times until shifting also change substantially. Moreover, it is shown that: (i) an increase of volatility has an asymmetrical effect on shifting the supplying mode; (ii) the real-option associated with full sourcing flexibility reduces the impact of the sunk expenditure on firms’ decisions, favouring the shift in any supplying mode.
Idioma originalAnglès
Pàgines (de-a)1539-1551.
RevistaJournal of the Operational Research Society
Volum72(7)
Estat de la publicacióPublicada - 2021

Fingerprint

Navegar pels temes de recerca de 'Sourcing flexibility with uncertain costs.'. Junts formen un fingerprint únic.

Com citar-ho