Supply flexibility and risk preferences experiment for a microchip company

Abstract

In this thesis we will focus our analysis in the inventory decisions with one specific kind of sourcing contract. More concretely, we will study and analyze the order quantities under a supply flexible contract conditions. The quantity flexibility contract in supply chain management is committed to reduce the risk of both retailers and suppliers, and optimize the profit of the whole supply chain at the same time. Under this contract, retailers are allowed to correct the base order quantity with an extra quantity order. This fact will benefit the retailer to suit the demand uncertainty. By experimental research, the thesis focuses on the limited-rational decision making of the human behavior in the operations management. The experiment is designed from the perspective of the retailer. Retailers make corresponding security quantity order decisions according to variable demand environment information. The thesis has established a mathematical model, which can derive the theoretical optimal values for the amount of extra quantity order. According to the statistical analysis of the actual quantity order, the study focuses on the differences between the actual decision and the theoretical optimum, and explains the reasons for deviation. The experiment set up four control groups to study the factors’ influence on retailers’ actual security quantity decisions by changing the reservation deposit and the product’s high or low profit margin level. The results show that the retailers are rational limited in the decision making. Their decisions are influenced by many factors, causing the ordering deviation. Through the comparison and analysis, the thesis attempts to provide a reference for retailers’ actual ordering decision, and lead to optimal largest possibly and ultimately achieve the best practices in order to try to resemble their real results with the theoretical optimum. At the same time, it’s necessary to reflect the deficiency of the research which can provide a new direction for the further theoretical research.