Essays on managing supply uncertainty: Diversification strategies, contingency plans, and coordination issues

The incremental emphasis on managing global supply chain risks has brought to prominence the need for effective management of supply disruptions and unreliable suppliers. This dissertation studies ways to better plan for and mitigate supply risks, especially those due to uncertain yield and unreliable delivery lead-times. The first essay studies the role of expediting in global supply chains of functional products (high volume, low demand uncertainty goods) with uncertain supply and logistics lead-times. In our stylized model, a firm is able to obtain detailed lead-time information and has the option to shorten in expectation the remaining lead-time by expediting a portion of the replenishment order with the use of an alternative faster supply mode. We characterize the optimal expediting policy in terms of how much of the order to expedite. We find that the opportunity of dynamic order expediting serves as a substitute for the safety lead-time and further allows the firm to benefit from economies of scale.;The second essay studies one widely employed risk mitigation strategy, namely supplier diversification, in the presence of yield uncertainty. We incorporate competition between sourcing firms and study a two-stage game, a sourcing strategy game followed by a quantity game, between them. We show that competition has little impact on the structure of the optimal sourcing strategy but might affect the use of dual sourcing strategy relative to the single firm case, especially with limited supplier choice. We further derive the equilibrium of the sourcing strategy game and point out that multiple equilibria may exist. We extend our basic model to include more suppliers and show that the insights about the optimal sourcing strategy is robust and the use of dual sourcing strategy increases.;The third essay considers coordination issues in a supply chain where a manufacturer sources from a supplier with random yield losses. We show that a cost sharing contract with manufacturer sharing a portion of the production cost, or a pay back contract with manufacturer paying a discount price for all excess production, can achieve supply chain coordination when manufacturer reveals the demand information to the supplier. In a different situation where manufacturer communicates with the supplier through orders, we study a leader-follower game with manufacturer placing order first followed by the supplier deciding the production quantity. We show that the cost sharing or pay back contract can coordinate the chain when demand is deterministic. When demand is stochastic, we show that full pay back contract with linear pricing cannot coordinate and we propose a coordinating contingent purchase contract.