No full-text available
To read the full-text of this research,
you can request a copy directly from the authors.
A coordination mechanism for a supply chain with demand information updating
Abstract
We consider the coordination of a supply chain with a long leadtime and demand information updating. In such a supply chain the initial production or key material procurement decision has to be made when there is limited information about the market demand. When it is the time for the final production and/or shipment decision, more accurate demand information is available, which allows the modification of the initial decision so that some costs can be saved. We consider a two-stage supply chain in which the manufacturer decides the initial production quantity in the first stage, and the retailer specifies her order quantity in the second stage after the demand forecast is improved. In this setting, the conventional return mechanism needs to be modified to coordinate the supply chain. We propose a risk sharing contract that requests the retailer to partially compensate for the manufacturer's loss that is attributable to the overproduction in the first stage, and the manufacturer to provide a partial credit for the retailer's loss that results from overstocking in the second stage. Such a contract not only extracts the maximal supply-chain profit, but can also improve the profit of each supply-chain member by tuning the contract parameters.
... For example, a fresh product supplier often suffers the risk of surplus due to high demand uncertainty, long supply lead time and short product-life cycle. Lack of the compensation, the risk-averse supplier would act conservatively to shed the potential overproduction risk [9]. Many scholars have noticed that demand information updating always benefits the retailer being close to a market while may hurt the supplier in certain cases [42,47]. ...
... Under this stream, the market signals during the production season can be collected to improve the demand forecast in the sales season (see [5, 8-15, 29, 32, 37, 42]). For example, Chen et al. [9] investigate the coordination of a supply chain with demand information updating. They demonstrate that the conventional return contract should be modified to achieve supply chain coordination. ...
... Many conjugate distributions can satisfy the above assumptions, such as uniform-uniform, uniform-Pareto, beta-negative binomial, gamma-Poisson and normal-normal distributions. To illustrate, suppose that market demand follows the Uniform-Uniform distribution [9,21,41]. Then, the new demand signal I and posterior demand x|i with I = i are given as follows: ...
Motivated by Hema Fresh's new-retail case, we study the coordination of a two-echelon fresh-product supply chain consisting of a single supplier and a single retailer. Due to a long production lead time, the supplier has to make production decision in advance based on early demand information. The market demand can be updated during the supplier's production lead time. Hence, the retailer would make order decision according to the latest demand information. Incorporating risk-sharing mechanism of overproduction and overstock, we propose a novel bi-directional risk-sharing contract to coordinate such a supply chain with demand information updating. We construct a two-stage optimization model in which the supplier first decides production quantity, and then the retailer decides final order quantity not exceeding the supplier’s initial production. In both the centralized and decentralized systems, we analytically derive the unique equilibrium of production and order decisions in a Stackelberg supplier-led game. We prove that the proposed contract can realize supply chain perfect coordination and explore how the proposed contract affects the members'decisions. The theoretical results show that, by turning the risk-sharing proportions, the supply chain profit can be arbitrarily split between the members, which is a desired property for supply chain coordination. Compared with the single risk-sharing contract, the proposed contract results in a greater supply chain profit and achieves Pareto improvement for both members. Furthermore, we also explore how the risk preference and negotiating power affect the contract selection and the additional profit allocation of the supply chain. Numerical examples are presented to verify our theoretical results.
... This preparation comes with a risk to the supplier, as it must bear overproduction loss. To avoid potential loss, the supplier often acts conservatively to shed part of its excess capacity (see [13]). These self-interested actions unavoidably result in double marginal effects and poor supply chain performance. ...
... This paper is distinct from the existing literature on demand information updating (see [4,6,7,13,39,40,43]). First, we combine European call option and buyback mechanisms to design a new hybrid option-buyback contract. ...
... As a result, supply chain members voluntarily act in the best interest of the supply chain. Second, the proposed contract is more advantageous than most of the existing contracts in coordinating the supply chain with demand information updating, such as a bidirectional return policy (see [13]). In an extension with price-dependent demand, the proposed contract can also achieve the coordination of such a supply chain with demand information updating. ...
We investigate how to coordinate a two-echelon supply chain in which a supplier builds production capacity in advance and a manufacturer makes the ordering decision based on updated demand information. By combining European call option and buyback mechanisms, we propose a new hybrid option-buyback contract to coordinate such a supply chain with demand information updating. We construct a two-stage optimization model in that the supplier offers option price and the manufacturer decides initial ordering quantity in the first stage, then the supplier offers exercise price and buyback price and the manufacturer decides final ordering quantity in the second stage after demand information is updated. In both the centralized and decentralized settings, we analytically derive the optimal equilibrium solutions of two-stage ordering quantity. Particularly, we obtain closed-form formulae to describe the members' optimal behavior with a bivariate uniformly distribution. We prove that the proposed contracts can realize the perfect coordination of the supply chain and analyze how the proposed contracts affect the members' decisions. The theoretical results show that, by tuning the option price or buyback price, the supply chain profit can be arbitrarily split between the members, which is a desired property for supply chain coordination. Compared with the standard option and buyback contract, the proposed contract results in a greater supply chain profit and achieves Pareto improvement for the supply chain members. Furthermore, extending the baseline model focusing on price-independent demand to the case of price-dependent demand, we show that the proposed contract still can achieve supply chain coordination. Numerical examples are also conducted to complement the theoretical results.
... An approach including a demand information update is given by Chen et al. (2006). In this case, a long lead time is considered. ...
... Limited variety of contracts (applies to clusters P3 and P4) Buyback type contracts are most common in a PR setting (Xiao et al. 2010a;Chen 2011a;Su 2009;Li et al. 2012b;Chen et al. 2006;Chen and Bell 2011a, b;Liu et al. 2014;Ruiz-Benitez and Muriel 2014;Choi et al. 2008;Chang and Yeh 2013;Xu et al. 2015;Lee and Rhee 2007;Dai et al. 2011;Huang et al. 2014). In multi-tier SCs some studies primarily assess the benefits of integrating other SC entities (Xu et al. 2014;Aydin et al. 2015) or rely on collaborative decision making (Yuan et al. 2015). ...
... Again, almost all analytical models are of game theoretical nature.Choi et al. (2008),Li et al. (2014) andChiu et al. (2014) provide mean-variance objectives, furthermore including risk-averse players.With the exception of Chen (2011a),Li et al. (2012a),Xiao and Shi (2014) and, again,Li et al. (2014), a symmetric information distribution is assumed. Again, coordination is usually achieved through contracts and buyback contracts(Xiao et al. 2010a; Chen and Bell 2011a, b;Chang and Yeh 2013;Su 2009;Li et al. 2012b;Chen et al. 2006;Lee and Rhee 2007;Liu et al. 2014;Ruiz-Benitez and Muriel 2014;Xu et al. 2015;Huang et al. 2014;Chen 2011a;Dai et al. 2011;Wang and Zipkin 2009;Choi et al. 2008) are predominant. Regarding demand modeling, all authors take stochastic demand into account, while returns volume is mostly modeled to be stochastic. ...
Various legal requirements as well as economic reasoning render the re-use of products mandatory. Hence, the field of supply chain management and coordination under the consideration of returns has constantly grown over the last decade. However, terms and definitions regarding returns and returns handling are inconsistent. Furthermore, approaches are not classified from a return-based point of view, which considerably impedes the discerning of research opportunities. We therefore provide a state-of-the-art review of the relevant literature and conduct a content and cluster analysis to propose a classification of present and future research. Furthermore, we highlight gaps in the existing literature, providing a road-map for further research. Practitioners are given an extensive overview regarding a multitude of approaches in returns management and coordination.
... By using this strategy, suppliers' sales of products can increase on one side; and on the other side, buyers may gain price advantages due to increased purchasing amount. Because of this coordination effect, procurement strategy with two ordering opportunities is prevalently employed in supply chains with short selling seasons ( Chen et al., 2006;Chen and Xu, 2001;Choi et al., 2003), and it can also be extended to LSSC ( Liu et al., 2014). Furthermore, procurement strategies with two ordering opportunities can be divided into two sub-strategies, respectively represented as sub-strategy I: only increasing purchase quantity is allowed at the second time of ordering ( Choi et al., 2003;Ma et al., 2012), and sub-strategy II: either increasing or reducing order quantities is allowed when LSI commences the second order ( Bassok and Anupindi, 2008;Sethi et al., 2004). ...
... This paper makes contributions in the following two aspects. On one hand, unlike existing papers that consider the two buying strategies only a background ( Chen et al., 2006;Ma et al., 2012), we focus on the comparison of the two substrategies and find out that sub-strategy II is not necessarily always better than sub-strategy I. This a counter-intuitive conclusion and can motivate researchers to further study in this field. ...
... In the second stream concerning supply chain contracts, a number of scholars studied the supply chain contracts problem, and they noted that when the market demand was predictable, the supply chain revenue could obtain Pareto improvement by performing an appropriate contract ( Donohue, 2000). As study goes further, contracts with ordering quantity flexibility ( Tsay, 1999) Milner and Rosenblatt (2002) and buyback contract ( Chen et al., 2006) are studied under more practical situations. In addition, the second order can be placed at different time points, according to which studies can be categorized into two groups. ...
... Savaskan and Van Wassenhove (2006) design a hybrid contract, which includes the decisions in a buyback and returns contract and a two-part tariff contract, to coordinate the channel when the manufacturer interacts with two competitive retailers to collect postconsumer goods. Chen et al. (2006) and Shi (2006) incorporate the decisions in a buyback and returns contract and a risk sharing contract into a new mechanism in order to optimize the interaction between the manufacturer and the retailer. As a remark, the major focus in Chen et al. (2006) is demand information updating while Shi (2006) emphasizes more on the risk attitude of the decision makers. ...
... Chen et al. (2006) and Shi (2006) incorporate the decisions in a buyback and returns contract and a risk sharing contract into a new mechanism in order to optimize the interaction between the manufacturer and the retailer. As a remark, the major focus in Chen et al. (2006) is demand information updating while Shi (2006) emphasizes more on the risk attitude of the decision makers. Apart from the above, Chiu et al. (2011) explore a hybrid policy by combining the wholesale pricing contract, the rebate contract, and the buyback and returns contract in the retailer-manufacturer link. ...
... Su (2009) analyzes the impact of full customer returns policies on channel coordination by comparing the performance of a buyback and returns contract with a rebate contract under the retailer-remanufacturer link. At the same time, both Chen et al. (2006) and Shi (2006) discuss the management of the link between the retailer and the remanufacturer via a hybrid contract (i.e., by combining a buyback and return contract with a risk sharing contract), but with different focal points. To be specific, Shi (2006) focuses on the overstock risk while Chen et al. (2006) consider both the overproduction and overstock risk. ...
With the growing awareness of environmental sustainability, reverse logistics is a very timely and critical area. Traditionally, the use of supply chain contracts has been proven to be effective in enhancing the performance of logistics systems. However, the current literature on supply chain contracts in reverse logistics is scattered. As a result, we aim to review in this paper the recent state of the art literature (2006–2016) on supply chain contracts with a focus on reverse logistics systems. We explore the popularity of different kinds of supply chain contracts, and identify the most productive researchers in the area. We classify and examine the literature with respect to the supply chain structure (i.e. the involved supply chain links), and channel leaderships (i.e. who acts as the leader). Finally, we identify the research gaps, suggest five major categories of future research directions and discuss the respective research challenges.
... Even with strong variations in customer demand, supply contracts can be used to improve the competitiveness of the supply chain through the application of strategies such as wholesale price contracts (WPC), revenue sharing contracts (RSC), repurchase contracts (BBC), or quantity discount contracts (QDC) (Seifbarghy et al., 2015). Chen et al. (2006) and Xiao & Yang (2009) used risk-sharing contracts to decrease the losses of manufacturers (overproduction) and retailers (excess inventory) under uncertain demand. Kim (2013) studied a bilateral contract with the flexibility of the number of orders as a risk-sharing mechanism to forecast demand. ...
... Chen et al. (2006),Xiao & Yang (2009), Seifbarghy et al. (2015,Zhou et al. (2018) ...
Paper aims: To identify factors to measure the cooperation between an agro-industrial pork slaughterhouse cooperative and input suppliers.
Originality: A performance measurement tool applicable in real-life industry practices related to input suppliers, based on critical success factors.
Research method: The performance measurement tool was calculated based on the analytic hierarchy process (AHP) procedure, constituted by two essential elements, the critical success factors and the key performance indicators, organized in a hierarchical structure. The key performance indicators are used to detail the critical success factors, measuring the supplier’s performance in relation to specific cooperation characteristics. Main findings In general, 77% of suppliers are fully or potentially cooperative with an established performance in risk sharing and information sharing factors. For the remaining 23% of suppliers classified as partially cooperatives, suggestions were proposed for changes to be implemented which improve their cooperation level performance. Finally, a direct relation between a low proportion of input discards and a established cooperative performance between suppliers and the analyzed agro-industrial pork cooperative was not verified.
Implications for theory and practice: To provide a performance measurement tool developed with methodological rigor to be used by researchers and agro-industrial pork slaughterhouse cooperative managers to improve the Brazilian pork slaughterhouse supply chain context.
... Подход к определению координирующего контракта, в котором учитываются интересы участников цепи, был предложен в работах, изучающих координацию в цепи на основе теоретико-игрового подхода. В исследованиях [Cachon, 2003;Chen, Chen, Chen, 2006;Chen, Shum, Semchi-Levi, 2014], помимо максимизации ожидаемой прибыли цепи (свойство коллективной рациональности), было добавлено условие, в соответствии с которым координирующий контракт должен обеспечивать равновесие по нэшу в игре двух лиц -поставщика и ритейлера (свойство индивидуальной рациональности участников). ...
... Последователи подхода кашона в основном модифицировали исходную модель, добавляя участников, предположение о склонности к риску и т. п. В статье [Chen, Chen, Chen, 2006] анализируется цепь поставок, состоящая из поставщика и ритейлера. Поставщик вынужден принимать решение об объемах производства товара задолго до начала сезона продаж, когда точность прогноза спроса очень низка, а выбор объема заказа товара ритейлером происходит непосредственно перед началом сезона продаж, когда точность прогноза спроса гораздо выше. ...
The concept of supply chain coordination implies that it is possible to obtain an optimal result for both independent chain participants and supply chain due to participants’ coordinated actions. This paper examines the question whether a buyback contract will be coordinating or not. The authors argue that a coordinating buyback contract should have the following substantive properties: practical feasibility, collective and individual rationality. The paper off ers a mathematical defi nition of a coordinating buyback contract which highlights these properties. Entering into buyback contract process is considered as a two-step game of two players (a supplier and retailer) on the assumption that the players are risk neutral and make decisions with full information available, the market price is fixed, and the product demand is a random variable. The authors demonstrate that the buyback contract does not coordinate the chain, however, there has been obtained a non-empty set of eff ective contracts depending on the buyback price. For such contracts, the defi nition of “conditional coordination” is given to introduce the property of a supplier’s partial rationality; its existence was proved. The findings reveal that the choice of buyback price affects the allocation of profits between chain participants so the decision on its choice must be cooperative. To substantiate the nature of cooperative choice of conditionally coordinating contracts, the asymmetric Nash solution is considered. All results were obtained both in general terms and under the assumption that the product demand has uniform distribution. For the latter case, the conditionally coordinating contract parameters were found and it was justified that the conclusion of such a contract is possible only when a supplier has greater bargain power than a retailer.
... With respect to demand updating, some scholars have studied pricing and inventory management issues in manufacturing supply chain [33,4,14], and supply chain contract design issues [44]. [47] extended the demand updating in some constraints. ...
... In equation (4)(5)(6)(7)(8)(9)(10)(11)(12)(13)(14)(15)(16), δ and 1 − δ are the weights for the normalized Z 1 and Z 2 , respectively. ...
This paper considers an logistics service supply chain consisting of a logistics service integrator (LSI) and a number of functional logistics service providers (FLSPs). In the environment of demand updating, we focus on the inequity aversion among the FLSPs and introduce two option contracts (the reservation option contract and the option guarantee contract), build the multi-objective programming models, to explore effects of the inequity aversion behavior on the order allocation, and whether the two option contracts can mitigate the impact of inequity aversion on order allocation. Three important conclusions are obtained after two option contracts comparisons: first, there is an optimal update time, at which point, the order allocation results reach the optimal value and tend to be stable. Second, two option contracts both can not only increase the total performance of the supply chain, but also mitigate the impact of inequity aversion on the allocation under certain conditions. Third, when demand decreases, the reservation option contract is better than option guarantee contract, in contrast, when demand increases, option guarantee contract is better.
... When it comes to supply chain contracts, a commonly adopted buy-back contract involves a commitment by the supplier to buy back unsold inventory at the end of the selling season and is intended to induce the buyer to place a larger order. As this contract can also help retailers obtain a pricing advantage and get good coordination performance, it is often used in manufacturing supply chains [3] as well as service supply chains [4]. In regards to complex environments however, especially ones with demand updating and mass customization service, there is a lack of current research as to whether a buy-back contract does in fact achieve a good coordination effect. ...
... This paper therefore, focuses on a logistics service capacity procurement strategy for an LSI based on demand information updating under MCLS. This current study is based on previous research by [3][4]. A primary difference from these two previous studies however is that the goal of this paper is to answer the following two questions: one is whether a buy-back contract still has a good coordination effect on LSSC capacity cooperation in MCLS, the other is whether external environmental parameters, such as the degree of demand updating and of customization, can influence the use of buy-back contract? ...
... In that model, the ordered goods could be produced at the beginning of each stage through a fast or a slow production mode. Other relevant studies include [22][23][24][25]. However, they have assumed that the prices pertaining to the second order are the same as those for the first order, which is rarely the case in practice. ...
... Moreover, each collaboration mechanism has its own advantages and application conditions, which will be influenced by the effect of demand uncertainty and the interaction effect of demand variability and the hotel's capacity. In contrast, previous studies have found that such collaboration mechanisms not only extract the maximal supply-chain profit but can also improve the profit of each supply-chain member [25,29,30] . ...
This paper considers a hotel supply chain consisting of a hotel and an online travel agent (OTA) for the distribution of a limited number of rooms through both offline and online channels. Under the merchant cooperation assumption, to overcome the disadvantages of the decentralized decision model and demand uncertainty, two collaboration mechanisms, namely a two-stage ordering contract and an option contract, are introduced to increase the profit in the hotel supply chain. This paper investigates the optimal decisions of the hotel and the OTA under different contract models. Moreover, the authors analyze the effect of demand uncertainty and the interaction of demand variability and the hotel’s capacity on the profits of the hotel and the OTA under different models. The results show that both the two-stage ordering contract and the option contract can increase the profits of the entire supply chain and the hotel; however, the profit of the OTA can be increased through the two-stage ordering contract and option contract only when the hotel’s capacity is relatively small and the demand variability is big; otherwise, the two collaboration mechanisms cannot increase the OTA’s profit.
... Yao et al. (2008) proposed an analytical model to analyse the impact of stochastic and price dependent demand on returns policy between manufacturer and retailer. The other variants of buyback contracts discussed in literature are: stochastic salvage capacity in fashion industry (Lee and Rhee 2007); two period contract model in case of decentralized assembly system (Zou et al. 2008); in case of updating of information in supply chain (Chen et al. 2006) and by including the risk preferences of the SC members (He et al. 2006). ...
... The authors have analyzed two mechanisms; an all unit quantity discounts and incremental quantity discounts the under production disruptions for possible coordination scenarios. A risk sharing contract is proposed where at the end of period the retailer compensates manufacturer's losses due to overproduction or manufacturer compensates retailer's losses due to over stock in case of supply chain with two stage demand information updating (Chen et al. 2006). ...
... People can use the best forecasts and do every possible analysis, but there is always uncertainty about future events [33]. Consequently, [40] proposed to contractualize the notion of risk between customer and supplier to improve the overall profit of the SC actors because it allows them to legally bind the stakeholders around one or several objectives [41]. The presence of risk is unavoidable in any project, and it can be tough to identify at times. ...
Reducing uncertainty in the supply chain (SC) is probably one of the major difficulties that the company must solve. Indeed, the SC is currently under enormous pressure and the decision-making process is frequently confronted with varied settings while making decisions due to the degree of uncertainty. The purpose of this study is to investigate the main major sources of uncertainty in SC. The study also examines the practices adopted to reduce uncertainty and enhance forecasting accuracy. A survey was carried out. Questionnaires were distributed amongst the managerial staff located in Morocco and other countries. We collected work e-mail addresses of managerial staff managerial working in SCs that operate in mass production and also in large-scale distribution and invited them to participate in an anonymous online survey. The questionnaire was designed to assess respondents' views about the main sources of uncertainty in SC and how they do to reduce it. Findings indicate that uncertainty occurs in any SC process, but the main uncertain prosses are procurement, supply planning, and demand forecasting. In addition, uncertainty comes from external and internal factors. Moreover, the decision-making mode, SC partnership, and risk contract have an important impact on the occurrence of uncertainty in the SC.
... At the same time, as a mechanism to coordinate the SC, it protects customers from shortages and excessive stocks and mitigates ordering costs remarkably (H. Chen, Chen, & Chen, 2006). Al-Ameri, Shah, and Papageorgiou (2008) developed a VMI strategy for an SC with multiple production sites that manufacture several products. ...
This paper presents a novel tri-objective robust Mixed-Integer Linear Programming (MILP) to a two-echelon supply chain configuration. It simultaneously considers the Vendor-Managed Inventory (VMI) policy and the Supply Chain Visibility (SCV), under uncertain demand. The objectives are to concurrently maximize the total visibility, minimize the number of deficient products and minimize the total cost. The LP-metric is then applied to deal with the tri-objectiveness of the model. The results show that the proposed approach successfully establishes robustness by deteriorating the optimal values of the objective functions as the cost of robustness. A sensitivity analysis reveals that the level of uncertainty has the greatest impact on the network's cost and deficiency of objective functions. However, the greatest effect on the SCV function is the change in the lower visibility threshold parameter. Moreover, the value of the deficiency rate parameter has the least impact on all three objective functions and has no impact on the visibility of the supply chain.
... Factors contributing to product demand risk include inaccurate demand forecast, demand variability, and information distortion (Ho et al., 2015). Appropriate forecasting and flexibility in contracts are common methods of combating demand risk by sharing them between the manufacturer and retailer (Chen, Chen, & Chen, 2006;Xiao & Yang, 2009). Further, quantity flexibility contracts help absorb demand fluctuations and reduce demand uncertainty (Kim, 2013). ...
Supply chain risk mitigation involves investing in strategic activities that minimize the financial impact of disruptions to the flow of goods in a supply chain. However, methods for assessing these strategies are not well established. Given the importance of mitigating supply chain risk, having a quantitative method for evaluating risk mitigation is imperative. This paper constructs a network data envelopment analysis (NDEA) model to assess risk mitigation investments by considering the cost of the strategies, performance outcomes, and interdependencies among the different stages of the supply chain. Risk mitigation strategies in this study were measured at the supplier, manufacturing, and customer segments of a firm’s supply chain. Efficiency analysis (comparing NDEA to traditional approaches) shows that NDEA provides a more holistic and useful assessment of supply chain risk mitigation performance.
... (Cachon and Fisher, 2000) recommend accelerating the flow of information (including EDI) to improve the performance of the distribution supply chain and reduce the bullwhip effect. (Chen et al., 2006) propose to contractualize the notion of risk between customer and supplier to improve the overall profit of partners. ...
The bullwhip effect is a phenomenon of curious amplification of variations in demand as one moves away from the final customer. Popularized by Lee and al., (1997), the bullwhip effect has negative consequences on all actors in the supply chain because it generates considerable loss of profits: Too much stock, loss of sales, poor customer service, insufficient quality and multiple disruptions of flow and organization. To prevent and reduce the bullwhip effect, various tools are recommended. The Electronic Data Interchange (EDI) is among the most important given its impact on accelerating information sharing throughout the supply chain. This paper aims to shed light on the role of EDI, VMI (Vendor-managed inventory) and CPFR (collaborative planning forecasting and replenishment) in the prevention and reduction of the bullwhip effect in the supply chain.
... Demand accuracy is important to companies, as it can be used to reduce overstock and stock-out costs (Chen, Chen, & Chen, 2006;Fisher & Raman, 1996;Wang, Atasu, & Kurtuluş, 2012). Song, Yang, Bensoussan, and Zhang (2014) studied the optimal ordering decisions for multiple products from a retailer who sources products from the contract market and spot market, which allows the most recent demand information to be used. ...
As remanufacturing may reduce production costs and energy consumption, an increasing number of companies are devoting attention to remanufacturing. This study investigates the impact of the remanufacturing strategy on the manufacturer, considering customer prejudice and accurate response. We characterize the optimal production and pricing decisions for new and remanufactured products in a two-stage model with and without remanufacturing. For new products, the manufacturer may make a speculative production before knowing the demand (which is defined as Situation A) and both speculative and reactive production before and after knowing the demand (which is defined as Situation B). Remanufactured products can be produced reactively after determining the demand, and remanufacturing can thus be considered a form of accurate response. Due to customer prejudice against remanufactured products, the manufacturer may not benefit from remanufacturing. In Situations A and B, the condition by which the manufacturer will participate in remanufacturing is presented. The results indicate that the government faces a greater challenge in enticing the manufacturer in Situation B to be involved in the remanufacturing strategy than that in Situation A. Finally, numerical experiments are performed to investigate the impact of the cost and demand parameters on the benefits of remanufacturing.
... In the beginning, Savaskan and Van Wassenhove (2006) extend a combined coordination contract including buy-back, return policy, and two-part tariff contract to make a SCC, where the manufacturer faces with two retailers who are competing on postconsumer goods collection. Then, Chen et al.(2006) investigate a supply chain with two specific features: long lead-time and demand information updating. They propose a hybrid contract based on return mechanism and risk sharing contract to successfully coordinate the channel. ...
Due to the dynamic nature of product life-cycle (PLC) and exclusive features of different phases, operational and long-term decisions such as supply chain coordination (SCC) may encounter some challenges. However, no studies have been done so far to evaluate the life-cycle impacts on SCC. In this regard, this paper studies a coordination approach in a closed-loop supply chain (CLSC) during the PLC including introduction, growth, maturity, and decline phases. The market demand and return rate functions are characterized according to the different phases as well as time-varying pricing decisions. First, the proposed problem is examined under the decentralized and centralized structures with life-cycle considerations. Then, a hybrid contract inspired by two-part tariff and joint collection cost mechanisms is developed to coordinate the channel. Finally, some numerical experiments and in-depth sensitivity analyses with a focus on different PLC phases are carried out. The results indicate that although the hybrid contract is able to satisfy a Pareto optimal solution in the life-cycle model, it does not necessarily work optimally in individual phases. On the other hand, contrary to the introduction phase, as the length of growth, maturity, and decline phases increase, the profits of channel players increase which implies that in order to design a more profitable PLC structure, a fundamental planning is needed.
... There is extensive work on delivery lead time in the supply chain coordination literature. Chen et al. studied the coordination of a supply chain with long lead time and demand information updating [3]. Pekgn et al. studied the problem of coordinating the production and marketing departments of a firm where the production department determines the lead time and the marketing department determines the retail price [18]. ...
Although recent decades have witnessed rapid development of e-commerce, direct sale of time-sensitive commodities on ecommerce platforms still faces significant challenges due to the dilemma between short delivery time and high delivery costs. To alleviate these challenges, manufacturers with online retailing operations have attempted to cooperate with offline retailers by using an “order-online, pickup-offline” (OOPO) strategy. To study the problem of effectively implementing the OOPO strategy for time-sensitive commodities, we consider a mechanism under which the manufacturer pays the retailers a cooperative service fee to ensure delivery coordination between the online and offline channels. We develop Stackelberg game-theoretic models to compare the profits of both delivery channels before and after the implementation of the OOPO strategy. By analyzing the models, we derive a feasible range on the cooperative service fee such that both channels are more profitable with the implementation. We further examine the plausibility of implementing the strategy when both channels are required to charge the same price on the commodities, which can lead to both channel coordination and pricing coordination.
... One is based on the observed market demand signal information (Gurnani and Tang 1999;Zhang et al. 2013); the other is based on actual observed demand (Bradford and Sugrue 1990;Eppen and Iyer 1997a, b;Tsay 1999). On the other hand, the research content related to demand updating mainly includes retailers using information updates to optimize ordering strategies (So and Zheng 2003;Sethi et al. 2007;Berk et al. 2007;Wu et al. 2013) and supply chain contract coordination under demand updating (Chen et al. 2006;Chen et al. 2010;Özen et al.,2012;Zhang et al.,2013). Then, as the research on service supply chain has increased, some scholars have gradually introduced demand updating into the service supply chain and studied procurement with demand updating (Liu et al. 2015a), order allocation (Liu et al.,2017;Zhu 2017;Choi and Cai 2018) and two-stage pricing issues (Liu et al. 2015b) against the background of logistics service supply chain. ...
In this paper, the impacts of dual overconfidence behavior and demand updating on the decisions of port service supply chain are studied with the real case study method. A port service supply chain consists of Tianjin Port, a shipping company, and a customer is investigated. A dual overconfidence behavior-based decision model under a demand updating background is built. Then the effects of Tianjin Port’s overconfidence (TPO) behavior and the shipping company’s overconfidence (SCO) behavior on the port service level (PSL), carrying volume and utilities are analyzed. Numerical analysis with real case data is conducted. Several important conclusions are obtained in this paper. Firstly, it is identified that the SCO leads to a decrease in the shipping company’s utilities, while dual overconfidence behavior causes the increase of Tianjin Port’s utilities. Secondly, it is found that the effect of the SCO on the PSL and the effect of TPO on the PSL offset each other which will lead to a threshold in TPO. This threshold is affected by the SCO, and demand updating amplifies this effect. Thirdly, demand updating not only adds to the shipping company’s carrying volume and PSL, but also increases the utilities of both parties. Lastly, it is unexpectedly found that there are interactions between demand updating and dual overconfidence behavior.
... There are many successful paradigms resulting from the adoption of the VMI strategies as mentioned before. Contributing in VMI systems with developing more analytical models, which are closed to real world can be significant point for commercial supply chains [13,26,51]. ...
A supply chain member’s coordination is a challenging issue and a key factor of success in business markets. In vendor-managed inventory systems, the vendor makes replenishment decisions at the site of buyer by which the supply chain can be coordinated more efficiently. Two integrated vendor managed inventory systems under continuous review and periodic review replenishment policies are developed considering partial backordering and limited storage capacity at the buyer’s side. Furthermore, traditional retailer managed inventory systems under the same settings are developed to compare against the integrated systems. Efficient algorithms are presented to derive the optimal values of decision variables. Finally, numerical experiments and comprehensive sensitivity analysis are used to show the applicability and efficiency of the proposed VMI systems.
... However, judging by the number of publication, we conclude that it is not a popular field of study. Chen, Chen, and Chen (2006) examine a two-stage supply chain where the manufacturer decides the initial production quantity in the first stage and the retailer determines the order quantity in the second stage after the demand forecast has been released. They find that the return contract cannot coordinate the supply chain. ...
Supply chain contracting and the use of information are undoubtedly two critical and influential areas in modern supply chain management. However, relatively little is known about supply chain contracting mechanisms with different information settings. To fill this gap, we review and classify the related supply chain contracting literature into three categories with respect to different kinds of information considerations, namely (i) demand information updating, (ii) supply information updating and (iii) information asymmetry. We report the publication trend and classify the commonly studied supply chain contracts with the use of information such as pricing contracts, commitment contracts and menu of contracts. We discuss how contracting and the use of information influence each other in the supply chain. Moreover, we review the major application areas of information usage and report the historical development of major related topics. Finally, we propose several important future research directions.
... However, judging by the number of publication, we conclude that it is not a popular field of study. Chen, Chen, and Chen (2006) examine a two-stage supply chain where the manufacturer decides the initial production quantity in the first stage and the retailer determines the order quantity in the second stage after the demand forecast has been released. They find that the return contract cannot coordinate the supply chain. ...
... In the supply chain coordination, there are also many scholars such as Tsay (1999), Donohue (2000), and Milner and Rosenblatt (2002) who conducted research on demand update and pointed out that supplier and retailer conducting a proper contract can improve the supply chain's profit when the market demand can be predicted. Chen et al. (2006) studied the pricing and inventory joint decision-making problems with demand update and random demand, and finally designed a buy-back contract to share the market risk. Liu et al. (2015b) studied the two-stage batch ordering strategy of logistics service capacity with demand update. ...
Regarding a two-echelon supply chain consisting of a logistics service integrator (LSI) and several functional logistics service providers (FLSPs), this paper establishes a two-stage order allocation model considering demand updating and the FLSPs’ fairness preferences. This model is a multi-objective programming model, whose goal is to maximize profits of the LSI and the total utility of FLSPs. The ideal point method is used to obtain the optimal solution. In the numerical example, the impacts of FLSPs’ behavioral parameters and demand update parameters on the order allocation in the social services network are discussed. Besides, multi-methodological method is used to verify the theoretical perspectives through an empirical study of Tianjin SND Logistics Company. Our study obtains a few important conclusions. For example, when demand of the second stage is updated, there is an optimal updating time maximizing the supply chain performance. Increased demand of the second stage results in greater supply chain performance. When the demand during the second stage decreases, the bigger the difference of the fairness preference coefficients among FLSPs, the greater the LSI’s profits and the lower the FLSPs’ total utility will be. However, the difference of the fairness preference coefficients among FLSPs has little influence on the LSI’s profits and total utility of the FLSPs, when the demand during the second stage increases.
... Other related works include a study on the backup agreement contract in fashion supply chains (Eppen and Iyer, 1997), an analysis of using quantity flexibility contracts in 14 supply chains with information update and spot market ( Sethi et al., 2004), an analytical investigation of the purchase contract management with demand forecast updating ( Huang et al., 2005), an analysis on the coordination mechanism for a supply chain with demand information updating ( Chen et al, 2006), a study on the coordination of QR supply chains under dual information updating (Choi, 2006), an exploration via a multi-agent approach on how information sharing in a supply chain can act as a coordination measure for alleviating the bullwhip effect ( Moyaux et al., 2007), a study of the dual purchasing contract under the newsvendor setting with forecast updating (Ozer et al., 2007), and a study of forecast updating and supplier coordination for complementary component purchases ( Thomas et al., 2009). As we can see from the above-reviewed literature, achieving coordination in a QR supply chain with an exogenous retail price has been well explored. ...
... Moreover, this paper introduces stockout costs (Wu et al., 2009) or shortage costs (Liu et al., 2014), when consumers prefer to unsubscribe from the core service and return the product in the retail channel. 3. The return rates and prices in the two channels, such as the bundling and wholesale prices, are exogenously established (Chen et al., 2006;Bose and Anand, 2007;Chen, 2011). We treat the product quantity as the decision variable, and examine how the two channels' return rates impact the dual-channel supply chain. ...
Recently, manufacturers have increasingly begun to sell products bundled with core services. However, customers are inconvenienced by individually returning the product or refunding the service after they have purchased a bundle. This paper presents a return and refund policy under two-stage demand uncertainty (uncertainty at time 0 and inherent uncertainty), for products bundled with core services in the dual-channel supply chain. Consumers can use the direct channel to return the default product–service bundle. In contrast, consumers in the retail channel can unsubscribe from the retailer's diverse core service by first receiving an unused service refund; the retailer then returns the product to the manufacturer. We use an approximate algorithm to solve for the optimal product quantity in the retail channel, demonstrating that the proportional marginal profit has a greater positive influence on the retailer's profit, and especially for the demand with a higher mean and lower variance.
... Bayes model, time-series model and forcast revision. Interested readers can review the details in reference [8][9][10][11][12][13][14][15]. ...
... Zou et al. (2004) considers channel coordination in a two-echelon decentralized assembly system with uncertain market demand could improve profit and performance without having to change quantities or prices, and the coordination matches the efficiency of centralized system. Chen et al. (2006) consider a two-stage supply chain in which the manufacturer decides the initial production quantity in the first stage, and the retailer specifies her order quantity in the second stage after the demand forecast is updated. In this setting, the conventional return mechanism needs to be modified to coordinate the supply chain and save costs. ...
... The authors propose that QR is a critical element of implementing fast fashion and an important measure to effectively deal with forward-looking strategic consumer behaviors. Other related research on QR and/or information updating in supply chain operations management includes many studies (Fisher and Raman, 1996;Fisher et al., 2001;Gallego and Ozer, 2001;Kim, 2003;McCardle et al., 2004;Tang et al., 2004;Sethi et al., 2005;Chen et al., 2006;Shaltayev and Sox, 2010;Chow et al., 2012;Choi, 2013;Liu and Nagurney, 2013;Yang et al., 2015). For more details about the related literature on QR supply chain management, refer to the review paper by Choi and Sethi (2010). ...
In fashion retailing, inventory decisions are usually made by a human manager who is not necessarily perfectly rational. In this situation, the inventory decisions made may not always be optimal. At the same time, with advances in technology, fashion retailers have access to the latest market information and can implement the quick response (QR) system that is very helpful to systematically deal with market disruptions. In this paper, we explore the value of QR with the consideration of a boundedly rational human manager in the fashion retailing company. We show that for both cases, with and without QR, the human retail manager's level of bounded rationality significantly hurts the expected profits of the retailer and supply chain, but it does not hurt the manufacturer's expected profit. In addition, for both cases, with and without QR, we indicate how a minimum ordering quantity (MOQ) measure can be imposed by the manufacturer on the retailer, so that the manufacturer can benefit (in terms of expected profit) from the retailer's bounded rationality behavior. We further prove that if the manufacturer sets the MOQ to be the same as the retailer's theoretical optimal ordering quantity, the manufacturer will enjoy a higher profit with 50% chance, if the retailer is boundedly rational.
... The information also needs to accurately represent future quantities so that supply chain partners can appropriately react. When this information is not accurate or timely, negative effects occur within a supply chain including bullwhip [1], higher levels of inventory, expedited shipping costs [2], and over/under production [3]. This study is motivated by a real forecasting/production planning problem faced by a major first tier auto parts supplier (referred to as Parts Inc.) who supplies to automobile manufacturers in the US, Europe, and Asia. ...
This paper considers an auto parts supplier who receives order release updates from its customers and revises its production plan for future periods on a weekly basis. The inaccuracy of the order releases causes significant costs in the form of premium expedited transportation, production overtime, and excess inventory. This setting provides a rich context for studying order release variance, because the supply chain has adopted a just-in-time (JIT) approach where ideal inventory levels are kept at zero. This leads to a high reliance on order release accuracy in order to manage production quantities. This paper presents an optimization model that extends previous approaches focused on optimizing production plans to the JIT setting. Furthermore, based on real order release information provided to the supplier, two simple adjustment heuristic methods are developed. The performances of these approaches are compared with relying solely on order releases received from the customers. The simple median-based adjustment heuristic performs the best of all the approaches. Implications of the analysis are also discussed.
... It also found that value of IS increases with fewer customers and larger order quantity and sharing point of sales data is not valuable, regardless of demand type. Chen et al. (2006) used demand IS with its updating at a later stage after the demand forecast is improved to study the performance of a two level SC. They proposed a risk sharing contract to compensate the loss due to over production at manufacturer and over stocking at retailer for the better performance of whole system. ...
In any supply chain (SC) system, information sharing is very important as it supports other SC drivers to enhance coordination and it thereby improves the performance of the entire SC. The objective of this study is to analyse the performance of a four level serial SC under eight different kinds of information sharing cases, with backorder and lost sales situations. The study has been done using experiments on SC simulation game software called 'SC role play game'. Steady state results from the game under different cases have been used to understand the behaviour under different information sharing cases. The data generated under different cases were subjected to statistical analysis to check for significant impact on performance between cases. The results show that the 'traditional' way of information sharing produces least performance and 'demand and SC performance' information sharing provides best performance for the SC under both backorder and lost sales situations. It is also seen that the performance improvement with better information sharing is more in the case of lost sales situation compared to backorder situation.
... The information also needs to accurately represent future quantities so that supply chain partners can appropriately react. When this information is not accurate or timely, negative effects occur within a supply chain including bullwhip [1], higher levels of inventory, expedited shipping costs [2], and over/under production [3]. This study is motivated by a real forecasting/production planning problem faced by a major first tier auto parts supplier (referred to as Parts Inc.) who supplies to automobile manufacturers in the U.S., Europe, and Asia. ...
The great changes in the external environment of the manufacturing supply chain make its demand more complex and difficult to control. This paper takes China as an example. According to questionnaire survey and principal component analysis, the risk indicators caused by uncertain demand are screened and classified to construct evaluation system and complete risk identification. The Bayesian network integrating fuzzy set theory and left and right fuzzy ranking is used to explore the relationship between risk indicators and supply chain to achieve risk evaluation. In view of the highest risk factors, an incentive mechanism model based on information sharing is put forward to prove theoretically that information sharing is an important strategy to reduce risk. The results are as follows: The uncertain demand will lead to a high level of risk in China’s manufacturing supply chain, in which the level of information technology is the biggest cause. Only when manufacturing enterprises are willing to share information and other node enterprises join the information sharing team, can demand uncertainty be fundamentally reduced. The proposed risk assessment model realizes the method innovation and theoretical innovation. It can practical and effectively help relevant enterprises to determine and control risks.
Purpose
This study statistically examines the shifting distribution channels in the American wine industry based on the growth trajectory of sales, seasonality and disruption due to consumers switching to online platforms. The purpose of this paper is to design a model that will have general applicability beyond the wine industry.
Design/methodology/approach
The research uses regression-based additive decomposition of time series data to predict the trajectory of the market share for the digital distribution channel. The study develops a statistical prediction model using time series data between 2007 and 2020, inclusive, sourced from US Annual Wine Reports and Bureau of Alcohol, Tobacco and Firearms databases.
Findings
The results show an increasing trajectory of wine sales through the online distribution channel with predictable seasonality. The disruptive effects of consumer switching behavior point to a steady increase in sales due both to increasing demand and accelerating switching. Nevertheless, the model shows that bricks and mortar purchases will remain strong and continue to account for the bulk of wine sales. COVID-19 has caused a step function increase in online sales but this should moderate after the crisis subsides and can be tested further.
Originality/value
This study is original in developing a model for an industry where bricks and mortar sales are growing and are expected to remain strong while there is still identifiable switching to online sales. The wine industry presents a classic case of accelerating switching behavior where there is still a strong franchise for in-store purchases. The model should have general applicability to distribution channels beyond the wine industry where steady growth, marked seasonality and disruptive consumer switching are in evidence.
Influenza vaccine supply chains are subject to yield and demand uncertainty, which leads to the mismatch between supply and demand. This paper studies the production and procurement decisions in the influenza vaccine supply chain consisting of a manufacturer facing uncertain production yield and a social planner who faces uncertain demand and is responsible for social infection costs. We develop a novel model framework considering the risks resulting from uncertainties on both supply and demand sides that the manufacturer may delay part of delivery and the social planner may order under or over demand. Based on the framework, we first discuss the production and procurement decision-making problem in a centralized and a decentralized system. By comparing the two systems, we present the existence and extent of the inefficiency in the influenza vaccine supply chain. Further, we propose a procurement strategy that provides the social planner with two ordering opportunities and explore the conditions under which the two members would be willing to accept the strategy. The results show that such a strategy is effective on improving the influenza vaccine supply chain coordination. Additionally, considering large-scale outbreaks of influenza epidemics, we extend the models with a piecewise linear infection probability function to those with a generic one and describe the characteristics of the extended models and their solutions.
The aim of this chapter is to examine the interdependencies that have been established with reference to the manufacturer-retailer interaction in textile and apparel (TA). Retailers’ strategies seek to reduce the risk of losses from unsold stock, mark-down policies, and stock-outs. These strategies call for manufacturing suppliers to adopt new practices for fulfilling orders flexibility, rapidly, and efficiently. The practices of “lean retailing” imply new manufacturers’ strategies, mainly in term of “lean manufacturing.” We examine the implications of these processes on the evolution of the relationships between industry and distribution. The chapter addresses the repercussions of the development of lean methods on the development of other formulas having a significant impact on the relationships between industry and distribution, specifically in TA. We then discuss further developments that may be proposed in TA and its channel relationships by shifting from a perspective of supply to one of demand.
Supply Chain Risk Management has increasingly becoming a more popular research area recently. Various papers, with different focus and approaches, have been published since a few years ago. This paper aims to survey supply chain risk management (SCRM) literature. Paper published in relevant journals from 2000 to 2007 will be analysed and classified into five categories: conceptual, descriptive, empirical, and exploratory cross-sectional and exploratory longitudinal. We also looked at the papers in terms of the types of risks, the unit of analysis, the industry sectors, and the risk management process or strategies addressed. The literature review will provide the basis for outlining future research opportunities in this field.
The aim of this chapter is to examine the interdependencies that have been established with reference to the manufacturer-retailer interaction in textile and apparel (TA). Retailers’ strategies seek to reduce the risk of losses from unsold stock, mark-down policies, and stock-outs. These strategies call for manufacturing suppliers to adopt new practices for fulfilling orders flexibility, rapidly, and efficiently. The practices of “lean retailing” imply new manufacturers’ strategies, mainly in term of “lean manufacturing.” We examine the implications of these processes on the evolution of the relationships between industry and distribution. The chapter addresses the repercussions of the development of lean methods on the development of other formulas having a significant impact on the relationships between industry and distribution, specifically in TA. We then discuss further developments that may be proposed in TA and its channel relationships by shifting from a perspective of supply to one of demand.
Industry practice has shown that logistics service greatly affects the turnovers in online channel. High quality service will stimulate consumption. However, there are few studies investigating the decisions on pricing and logistics service quality simultaneously in the supply chain including one manufacturer and one online retailer. To address the gap, this paper studies the optimization of logistics service quality with pricing. To solve such decision-making challenges, firstly a basic model is applied to analyze how manufacturer decides the wholesale price. The retailing price and logistics service quality are also presented at cooperative and non-cooperative scenarios, respectively. Compared to the centralized policy, optimal price is higher in decentralized policy while the logistics service quality is lower. The expected profit of total chain decreases by 25%. Then, two contracts are proposed in a decentralized supply chain to coordinate the chain. Revenue sharing and cost sharing contract can realize the coordination, while sole cost sharing contract cannot. Finally, a numerical example is presented to verify the effectiveness of contract and the findings of models are illustrated.
Purpose
The impact of information technology (IT) on the agility of supply chain management (SCM) systems is very noticeable in the business world nowadays. Competition and constant changes, including product/technological innovations, decreasing product lifestyles and product proliferation, create pressure that affects the business environment. Organizations are required for answering the changes in the market to gain a competitive advantage and business success. The organizations are able to answer to unexpected market changes through supply chain market, and these changes are converted to business opportunities. Using IT to achieve the agility of SCM is one of the important factors to help the organizations. Therefore, the adoption of IT and its efficient implementation can improve the cooperation between supply chain agility through the rapid transfer, the distribution of accurate information and the use of information. This paper aims to investigate the impact of IT on the agility of SCM.
Design/methodology/approach
A total of 120 employees of the Golasal firm are involved in collecting data using a questionnaire. Measurements were performed in all questionnaires using a five-point Likert scale. The causal model is evaluated by structural equationmodeling technique, which is used to examine the reliability and validity of the model.
Findings
The results have shown that IT has positive influences on the agility of SCM systems. In addition, the obtained results have shown that four variables, namely, IT skills and knowledge, IT-based systems integration, IT infrastructure and design of global position system and geographic information systems, affect the agility of SCM systems.
Originality/value
In this paper, the agility of SCM systems is pointed out and the approach to resolve the problem is applied into a practical example. The presented model provides a complete framework to examine the impact of IT on the agility of SCM systems.
When procuring from a manufacturer (she) with random yield, the retailer (he) is often reluctant to share the risk caused by this yield, while the manufacturer is not. However, if the manufacturer possesses private productivity information, the retailer may change his decision. To capture the interaction between risk-sharing and asymmetric information, we build a model in which the retailer designs a non-risk-sharing contract (a simple wholesale price contract) or a risk-sharing contract (a wholesale price contract with a subsidy) for the manufacturer given both random yield and private productivity information. The manufacturer's best response, the optimal contract menus and the supply chain participants’ profits in each case are theoretically derived. By examining the value of risk-sharing, we find that the retailer cannot benefit from risk-sharing under symmetric information. Interestingly, under asymmetric information, risk-sharing benefits not only the manufacturer but also the retailer under certain conditions, resulting in a win-win situation for both the retailer and the manufacturer. Furthermore, we analyze the value of information, illustrating that asymmetric information always harms the retailer and benefits the manufacturer regardless of whether or not the retailer shares risk. However, risk-sharing can weaken (enhance) the effect of asymmetric information on the retailer (manufacturer). Additionally, we derive the optimal contract menus under deterministic yield and find that risk-sharing makes no significance.
Purpose
The purpose of this paper is twofold, first providing researchers with an overview about the uncertainties occurred in procurement including applicable approaches for analyzing different uncertain scenarios, and second proposing directions to inspire future research by identifying research gaps.
Design/methodology/approach
Papers related to supply chain risk management and procurement risk management (PRM) from 1995–2017 in several major databases are extracted by keywords and then further filtered based on the relevance to the topic, number of citations and publication year. A total of over 156 papers are selected. Definitions and current approaches related to procurement risks management are reviewed.
Findings
Five main risks in procurement process are identified. Apart from summarizing current strategies, suggestions are provided to facilitate strategy selection to handle procurement risks. Seven major future challenges and implications related PRM and different uncertainties are also indicated in this paper.
Research limitations/implications
Procurement decisions making under uncertainty has attracted considerable attention from researchers and practitioners. Despite the increasing awareness for risk management for supply chain, no detail and holistic review paper studied on procurement uncertainty. Managing procurement risk not only need to mitigate the risk of price and lead time, but also need to have sophisticated analysis techniques in supply and demand uncertainty.
Originality/value
The contribution of this review paper is to discuss the implications of the research findings and provides insight about future research. A novel research framework is introduced as reference guide for researchers to apply innovative approach of operations research to resolve the procurements uncertainty problems.
We consider the effect of competition between a firm and its potential suppliers on their decisions, including the firm's decision regarding which supplier to choose. The supply-chain parties interact via a wholesale-price contract with risk sharing via compensation payments paid by the supplier to the firm for early/late supplies. Both the demand for products and the delivery lead time are stochastic. We use Nash and Stackelberg scenarios to model the competition with a game theoretic approach depending on the level of information available to the supply-chain parties. The firm determines the order quantity and the planned delivery time, whereas the supplier controls the accuracy of the delivery times. We show the supplier's leadership has no effect on the supply-chain equilibrium only if the system conditions are such that the demand is known and an order should be placed as soon as possible. Unexpectedly, the Stackelberg solution, and therefore information asymmetry, may be more profitable for both supply-chain parties; that is, it may be Pareto-improving. We also find that by agreeing to greater compensation for early and late deliveries, the supplier may increase its expected profit, as well as the profit of the entire supply chain, thereby coordinating it.
Mass customization (MC) programs are commonly seen in the real world. Many companies offer consumer returns and quick delivery for their MC products to the market. Thus, the quick response (QR) strategy is crucial for MC supply chains. Prior studies in related areas only examine MC supply chains with limited features and topics, such as measures for win-win coordination or profit risk analysis, but without a comprehensive consideration of these aspects together. Besides, the systems enhancement schemes are not yet explored. This paper aims to fill these gaps and generate novel insights. Among the findings, we show that a higher salvage value of the consumer returned items and a higher salvage value of the unused inventories both can reduce the value of QR for the supplier. We illustrate how a simple two-part tariff contract and a sophisticated hybrid contract can achieve win-win coordination with different levels of flexibility. We also conduct a profit risk analysis on the MC supply chain. Finally, we demonstrate how three practical measures, namely technology investment, product design improvement, standardization of component, can further improve the MC supply chain system's performance.
A vendor-managed inventory (VMI) partnership is a popular approach to promote channel performance. This paper is motivated by real-industrial practices in the fashion industry and explores the issue of how a VMI partnership with markdown money policy (MMP) operates in the fashion supply chain. MMP is also known as a vendor agreement whereby a vendor supports the profitability of their particular brand with a specific retailer. A vendor allowance (VA) in the form of markdown money is issued to the said retailer in a certain period, e.g., every quarter or six-month season. We propose a model in the context of a two-echelon supply chain with one single supplier and one single retailer trading via a VMI partnership with MMP in both decentralized and centralized supply chains. We find that under the VMI mode with an MMP, the supply chain is able to achieve coordination, and the retailer’s profit is better off but the supplier suffers. We then conduct a numerical study to further explore the impact of VMI within the supply chain with the MMP. Important insights into industry practices are discussed.
In a low-profit environment, numerous firms no longer use traditional hiring practices and are forced to use a temporary workforce; these practices result in a more flexible workforce. Although outsourcing provides several benefits, it has a high level of risk. Therefore, implementing an enterprise risk management programme is crucial for using temporary labour. This study investigated the condition under which the multiperiod contract of a temporary work agency prohibits labour shortages. This investigation was performed to improve the effectiveness of dispatch contract designs. This study incorporated the concepts of labour demand forecasting and risk sharing and proposes two types of quantity flexibility contracts, period quantity adjustment and total quantity adjustment, to develop an optimal manpower dispatch contract model. An optimal manpower dispatch contract model must coordinate the interests of a temporary work agency and user firms to increase profits for both firms and must be flexible enough to allow for numerous order adjustments. To achieve this objective, this study used sensitivity analysis and an experimental design methodology to analyse the benefits of period quantity adjustment and total quantity adjustment and, accordingly, determine the factors that influence the total expected profit.
Green supply chain coordination management plays an important role in green supply chain system. This study presents the formula of green supply chain coordination surplus as the driving force of green supply chain coordination management is to get more green supply chain coordination surplus, propose the definition green supply chain coordination surplus and its calculation formula. It reveals out that green supply chain coordination surplus is an order parameter of green supply chain coordination management, which drives green supply chain system to evolve and develop. It supposes that allocation of green supply chain coordination surplus is a Pareto improvement issue and core enterprise plays an important role in the allocation of green supply chain coordination surplus.
This paper extends the existing models to the case where the random demand depending on advertising expenditure and selling price follows the additive form. The retailer's optimal ordering, pricing and advertising decision model and the manufacturer's optimal production decision model are respectively developed, and the closed-form solution to each model is provided as well. Moreover, we explore the effect of different forms of demand function (i.e., multiplicative form and additive form) on the decisions of the supply chain members. Our analysis suggests that the multiplicative form fits for depicting the demand of the branded products while the additive form is appropriate for the new or low brand recognition products. Finally, we implement a numerical study to illustrate the models.
We determine the optimal ordering policy for a retailer who has two instants to order a seasonal product from a manufacturer prior to a single selling season. While the demand is uncertain, the retailer can improve the forecast by utilizing the market signals observed between the first and second instants. However, because of the nature of the manufacturing environment, the unit cost at the second instant is uncertain and could be higher (or lower) than the unit cost at the first instant. To determine the profit-maximizing ordering strategies at both instants, the retailer has to evaluate the trade-off between a more accurate forecast and a potentially higher unit cost at the second instant. We present a nested newsvendor model for determining the optimal order quantity at each instant and characterize the conditions under which it is optimal for the retailer to delay its order until the second instant.
Consider a supply chain consisting of two independent agents, a supplier (e.g., a manufacturer) and its customer (e.g., a retailer), the latter in turn serving an uncertain market demand. To reconcile manufacturing/procurement time lags with a need for timely response to the market, such supply chains often must commit resources to production quantities based on forecasted rather than realized demand.
The customer typically provides a planning forecast of its intended purchase, which does not entail commitment. Benefiting from overproduction while not bearing the immediate costs, the customer has incentive to initially overforecast before eventually purchasing a lesser quantity. The supplier must in turn anticipate such behavior in its production quantity decision. This individually rational behavior results in an inefficient supply chain.
This paper models the incentives of the two parties, identifying causes of inefficiency and suggesting remedies. Particular attention is given to the Quantity Flexibility (QF) contract, which couples the customer's commitment to purchase no less than a certain percentage below the forecast with the supplier's guarantee to deliver up to a certain percentage above. Under certain conditions, this method can allocate the costs of market demand uncertainty so as to lead the individually motivated supplier and customer to the systemwide optimal outcome. We characterize the implications of QF contracts for the behavior and performance of both parties, and the supply chain as a whole.
We focus on backup agreements between a catalog company and manufacturers---a scheme to provide upstream sourcing flexibility for fashion merchandise. A backup agreement states that if the catalog company commits to a number of units for the season, the manufacturer holds back a constant fraction of the commitment and delivers the remaining units before the start of the fashion season. After observing early demand, the catalog company can order up to this backup quantity for the original purchase cost and receive quick delivery but will pay a penalty cost for any of the backup units it does not buy. In representative contracts with five companies, the fraction held as backup varies from 20% to 33% and the penalty ranges from 0 to 20% of cost. We model this inventory problem and derive the optimal solution. We provide results from a retrospective parallel test of the model against buyer decisions in 1993 based on a data set from the women's fashion department at a catalog company (Catco). The results indicate that backup arrangements can have a substantial impact on expected profits and may result in an increase in the committed quantity. Also, these arrangements may maintain the manufacturer's expected profit for a wide range of parameters.
This paper considers the very common situation in which a single-period ‘newsboy’ type product may be ordered or produced twice during a season/period. We show that the explicit consideration of this reorder opportunity makes the newsboy problem very much richer. The specific version considered in this paper allows a reorder during mid-season after the early-season demand has been observed, and this reorder arrives after a given lead time. The demand distributions during the various portions of the season may have very general distribution forms; also, the late-season and early-season demands may be dependent. Solution procedures are developed to find the best way to exploit this reorder opportunity, and our numerical solutions indicate that this reorder opportunity can improve profits considerably as long as the product's profit margin is not very high. Other real-world variations of this two-order newsboy problem are briefly discussed.
Traditionally, fashion products have incurred high losses due to stockouts and inventory obsolence because long lead times coupled with a concentrated selling season force all or at least most production to be committed before demand information is available. Under a quick response system, lead times are shortened sufficiently to allow a greater portion of production to be scheduled in response to initial demand. We model and analyze the decisions required under quick response and give a method for estimating the demand probability distributions needed in our model. We applied these procedures with a major fashion skiwear firm and found that cost relative to the current informal response system was reduced by enough to increase profits by 60%. Relative to the cost that would have been incurred if no response were used, optimized response reduces cost by enough to roughly quadruple profits.
This chapter reviews the supply chain coordination with contracts. Numerous supply chain models are discussed. In each model, the supply chain optimal actions are identified. The chapter extends the newsvendor model by allowing the retailer to choose the retail price in addition to the stocking quantity. Coordination is more complex in this setting because the incentives provided to align one action might cause distortions with the other action. The newsvendor model is also extended by allowing the retailer to exert costly effort to increase demand. Coordination is challenging because the retailer's effort is noncontractible—that is, the firms cannot write contracts based on the effort chosen. The chapter also discusses an infinite horizon stochastic demand model in which the retailer receives replenishments from a supplier after a constant lead time. Coordination requires that the retailer chooses a large basestock level.
We investigate the role of options (contingent claims) in a buyer-supplier system. Specifically using a two-period model with correlated demand, we illustrate how options provide flexibility to a buyer to respond to market changes in the second period. We also study the implications of such arrangements between a buyer and a supplier for coordination of the channel. We show that, in general, channel coordination can be achieved only if we allow the exercise price to be piecewise linear. We develop sufficient conditions on the cost parameters such that linear prices coordinate the channel. We derive the appropriate prices for channel coordination which, however, violate the individual rationality constraint for the supplier. Contrary to popular belief (based on simpler models) we show that credit for returns offered by the supplier does not always coordinate the channel and alleviate the individual rationality constraint. Credit for returns are useful only on a subset of the feasibility region under which channel coordination is achievable with linear prices. Finally, we demonstrate (numerically) the benefits of options in improving channel performance and evaluate the magnitude of loss due to lack of coordination.
Demand forecasts do not become consistently more accurate as they are updated. We present examples demonstrating this counterintuitive phenomenon and some theoretical results to explain its occurrence. Specifically, we analyze the effect of demand randomness on forecast-update performance. A surprising result is that under various theoretical models involving demand randomness alone, updated forecasts will be less accurate between 30% and 50% of the time.
This paper examines three channel policies that are used in declining price environments: Price protection (P) is a mechanism under which the manufacturer pays the retailer a credit applying to the retailer's unsold inventory when the wholesale price drops during the life cycle; midlife returns (M) allow the retailer to return units partway through the life cycle at some rebate; and end-of-life returns (E) allow the retailer to return unsold units at the end of the life cycle. Under declining retail prices, if the wholesale prices and the return rebates are set properly, then EM (i.e., midlife and end-of-life returns) achieves channel coordination. However, such a policy may not be implementable because it may require the manufacturer to be worse off as a result of coordination. If P is used in addition to EM and the terms are set properly, then PEM guarantees both coordination and a win-win outcome. If the retail price is constant over time, then EM is sufficient to guarantee both coordination and a win-win outcome.
We examine the problem of developing supply contracts that encourage proper coordination of forecast information and production decisions between a manufacturer and distributor of high fashion, seasonal products operating in a two-mode production environment. The first production mode is relatively cheap but requires a long lead time while the second is expensive but offers quick turnaround. We focus on contracts of the form (w<sub>1</sub>, w<sub>2</sub>, b) where w<sub>i</sub> is the wholesale price offered for production mode i and b is a return price offered for items left over at the end of the season. We find that such a contract can coordinate the manufacturer and distributor to act in the best interest of the channel. The pricing conditions needed to ensure an efficient solution vary depending on the degree of demand forecast improvement between periods and the manufacturer's access to forecast information. We also examine whether these conditions ensure a Pareto optimal solution with respect to two traditional production settings.
This paper considers the pricing decision faced by a producer of a commodity with a short shelf or demand life. A hierarchical model is developed, and the results of the single period inventory model are used to examine possible pricing and return policies. The paper shows that several such policies currently in effect are suboptimal. These include those where the manufacturer offers retailers full credit for all unsold goods or where no returns of unsold goods are permitted. The paper also demonstrates that a policy whereby a manufacturer offers retailers full credit for a partial return of goods may achieve channel coordination, but that the optimal return allowance will be a function of retailer demand. Therefore, such a policy cannot be optimal in a multi-retailer environment. It is proven, however, that a pricing and return policy in which a manufacturer offers retailers a partial credit for all unsold goods can achieve channel coordination in a multi-retailer environment. This article was originally published in , Volume 4, Issue 2, pages 166–176, in 1985.
Supply chain (SC) coordination can be pursued by adopting a centralized or decentralized decision-making approach. The former option occurs when there is a unique decision maker in the SC, the latter when several independent actors make decision at the different SC stages. SC contracts are a useful tool to make the several SC actors of a decentralized setting behave coherently among each other, as if the chain were operated in a centralized fashion.In this paper, we propose a model of an SC contract aimed at coordinating a three-stage SC, which is based on the revenue sharing mechanism. This model allows the system efficiency to be achieved as well as it could improve the profits of all the SC actors, by tuning the contract parameters.
While over the past 4 years more than 1000 B2B electronic markets that cater to a wide spectrum of industries have been established, many of them have already disappeared. This reality can be explained by several factors, two of which we think are important: the transaction fees that owners of these markets charge participants, and the supply chain coordination mechanisms that these markets do (or actually do not) facilitate. In this paper, we take the viewpoint of supply chain coordination to analyze the decision of suppliers and buyers to do or not do business in electronic markets while selling perishable products with random demand.
Under a revenue-sharing contract, a retailer pays a supplier a wholesale price for each unit purchased, plus a percentage of the revenue the retailer generates. Such contracts have become more prevalent in the videocassette rental industry relative to the more conventional wholesale price contract. This paper studies revenue-sharing contracts in a general supply chain model with revenues determined by each retailer's purchase quantity and price. Demand can be deterministic or stochastic and revenue is generated either from rentals or outright sales. Our model includes the case of a supplier selling to a classical fixed-price newsvendor or a price-setting newsvendor. We demonstrate that revenue sharing coordinates a supply chain with a single retailer (i.e., the retailer chooses optimal price and quantity) and arbitrarily allocates the supply chain's profit. We compare revenue sharing to a number of other supply chain contracts (e.g., buy-back contracts, price-discount contracts, quantity-flexibility contracts, sales-rebate contracts, franchise contracts, and quantity discounts). We find that revenue sharing is equivalent to buybacks in the newsvendor case and equivalent to price discounts in the price-setting newsvendor case. Revenue sharing also coordinates a supply chain with retailers competing in quantities, e.g., Cournot competitors or competing newsvendors with fixed prices. Despite its numerous merits, we identify several limitations of revenue sharing to (at least partially) explain why it is not prevalent in all industries. In particular, we characterize cases in which revenue sharing provides only a small improvement over the administratively cheaper wholesale price contract. Additionally, revenue sharing does not coordinate a supply chain with demand that depends on costly retail effort. We develop a variation on revenue sharing for this setting.
We investigate in this paper an optimal two-stage ordering policy for seasonal products. Before the selling season, a retailer can place orders for a seasonal product from her supplier at two distinct stages satisfying the lead-time requirement. Market information is collected at the first stage and is used to update the demand forecast at the second stage by using Bayesian approach. The ordering cost at the first stage is known but the ordering cost at the second stage is uncertain. A two-stage dynamic optimization problem is formulated and an optimal policy is derived using dynamic programming. The optimal ordering policy exhibits nice structural properties and can easily be implemented by a computer program. The detailed implementation scheme is proposed. The service level and profit uncertainty level under the optimal policy are discussed. Extensive numerical analyses are carried out to study the performance of the optimal policy.
Value of postponement from variability reduction through uncertainty resolution and forecast improvement
- Lee
Lee, H., Whang, S., 1998. Value of postponement from variability reduction through uncertainty resolution and forecast improvement. In: Ho, T., Tang, C. (Eds.), Product Variety Management: Research Advances. Kluwer Publishers, Boston, pp. 66–84 (Chapter 4).
Supply chain coordination with contracts Handbooks in Operations Research and Management Science: Supply Chain Management Supply chain coordination with revenue sharing contracts: strengths and limitations. Working Paper, The Wharton School of Business
- G P Cachon
- North-Holland
- Amsterdam
- G Cachon
- M A Lariviere
Cachon, G.P., 2002. Supply chain coordination with contracts. In: Graves, S., de Kok, T. (Eds.), Handbooks in Operations Research and Management Science: Supply Chain Management. North-Holland, Amsterdam. Cachon, G., Lariviere, M.A., 2000. Supply chain coordination with revenue sharing contracts: strengths and limitations. Working Paper, The Wharton School of Business, University of Pennsylvania, Philadelphia. Cattani, K.D., Hausman, W., 2000. Why are forecast updates often disappointing? Manufacturing and Service Operations Management 2 (2), 119–127.