Decision analysis for order- specif ic component procurement with loss-averse utility
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    Abstract:

    This paper studied a procurement problemfaced by the make-to-order manufacturer with loss-averse utili2 ty , who will purchase additional units of an order- specific component besides his advanced purchasing. Because of long leadtime , the advanced procurement was an important way to increase the possibility of on-time delivery , and it might result in a lot of dead inventory. It was a big challenge to the make-to-order company to tradeoff the dead in2 ventory and late delivery. After a mathematical purchasing-problem model was setting up , the existence of the opti2 mal solution was proved and the effect of loss aversion , the uncertainty of the component demand , the supply con2 tract parameters , and the component nature etc. on the purchasing decision were studied. As a result , our research reveals that the loss-averse manufacturer’s purchasing decision is different from the manufacturer’s with risk-neutral utility and risk-averse utility , and it is not in line with the intuition under some circumstances

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