Spring 2010 UMASS Amherst
Operations Research / Management Science Seminar Series

Date: Friday, April 30, 2010

Time: 11:00 AM
Location: Isenberg School of Management, Room 112

Speaker: Professor Mehmet Gumus

Desautels Faculty of Management
McGill University
Montreal, Quebec, Canada

Biography: Dr. Mehmet Gumus is an Assistant Professor of Operation Management at the Desautels Faculty of Management at McGill University. He joined McGill in 2007 from the University of California at Berkeley where he completed his PhD at the department of 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. 

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)
This series is organized by the UMASS Amherst INFORMS Student Chapter. Support for this series is provided by the Isenberg School of Management, the Department of Finance and Operations Management, INFORMS, and the John F. Smith Memorial Fund.

Dr. Anna Nagurney, the John F. Smith Memorial Professor of Operations Management in the Isenberg School of Management,  is the Faculty Advisor of the Speaker Series.