Controlling a supplier’s subcontracting decisions through contractual enforcement or economic incentives

Suppliers often subcontract part of their workload to other suppliers, and manufacturers might suffer severe consequences if they do not anticipate their suppliers’ incentives to subcontract. In this paper, we study the case where a manufacturer outsources two tasks to a top-tier supplier. The manufacturer must decide whether it should design a contract that enforces that the different tasks are completed by the appropriate suppliers, and when it is preferable to use economic incentives to manipulate the top-tier supplier’s subcontracting behaviour. We find that when the cost difference between suppliers of different tiers is small and the correlation between the risks associated with the two tasks is minimal, the manufacturer can benefit from designing a contract that ensures the preferred subcontracting behaviour, if the cost of enforcing such a contract is not too high. However, when such enforcement cost is substantial, the manufacturer might be better off manipulating the top-tier supplier’s economic incentives.     

Strategically decentralise when encroaching on a dominant supplier

A manufacturer may encroach on his suppliers by developing substitutable components. In the presence of encroachment, the manufacturer could assemble products using (high-end) components purchased from the supplier, and assemble products using (low-end) components produced in-house. Thus, the manufacturer must deliberate on how to manage the expanded organisation consisting of competing product divisions. In this paper, we examine the quintessential organisational structure decision – the centralisation versus decentralisation choice – from the perspective of the manufacturer. Our model assumes that the supplier is a dominant player, moving first by pricing the high-end component, and consumers have a higher willingness-to-pay of the product containing the high-end component. In such a context, we find that the manufacturer may encroach on the supplier even if producing the low-end component costs more than producing the high-end one. The supplier should strategically price to deter or accommodate downstream encroachment contingent on the manufacturer’s organisational structure decision. If the unit cost of low-end components is high enough, product-based decentralisation is preferred to centralisation due to the supplier’s lower wholesale price. Furthermore, the manufacturer’s strategic decentralisation always hurts the supplier, always benefits the customers and could benefit or hurt the entire supply chain under certain conditions.     

Horizontal cooperation and information sharing between suppliers in the manufacturer–supplier triad

In this paper, we analyse a collusion and information-sharing problem between two suppliers in a manufacturer–supplier triad. The manufacturer treats one supplier as a strategic supplier and the other as a backup. While the strategic supplier offers modules of good quality but longer lead times, the backup supplier offers modules with inferior quality but shorter lead times. If there are urgent orders, the manufacturer must turn to the backup supplier. However, it is difficult for the manufacturer to estimate whether the urgent supplier has put extra effort into their production. We formulate this problem by assuming that the urgent supplier has either low or high production costs. To take advantage of the competition between two suppliers, the manufacturer can design a contract menu that defines total payment and lead times, under which both suppliers may be worse off. Meanwhile, it is possible for the suppliers to tacitly form a coalition, and to even share the private cost information. We study this problem by formulating it as a three-stage game. Furthermore, we investigate the variation of profits for each part of the supply chain. We find that the manufacturer is worse off when suppliers cooperate or share private information. Both suppliers, however, can benefit from cooperation and information sharing.     

Multiobjective capital allocation for supplier development under risk

Supplier development is increasingly important due to the complexity of today’s supply chains and the globalisation of businesses. Since manufacturers have only limited resources, they need to make an informed decision about which suppliers to develop. Moreover, the returns from investment in supplier development are uncertain, so manufacturers have to take this risk into account when choosing their suppliers for development programmes. In this paper, we propose a multi-objective model for capital allocation for supplier development under risk. We apply it to an example of a global car manufacturer and support the decision-making process with data downloaded from the Bloomberg database. We use stock market returns and cost of capital of suppliers to assess their performance. Our model supports an informed decision, which is that tradeoffs exist between risk and cost of supplier development programme. Depending on the risk aversion of the manufacturer, we demonstrate different allocation schemes for supplier development.     

The optimal technology licensing strategy under supply disruption

We study the problem of whether and how a patent-holding firm (supplier S1) should license its technology patent to a potential rival (supplier S2). If the license is given, the two suppliers both produce a critical component for their downstream manufacturer simultaneously (sequentially) when the manufacturer adopts a dual (contingent) sourcing mode. However, both suppliers face risks of complete supply disruptions. In the study, we examine how the supply risk affects S1's technology licensing willingness and under which conditions royalty or fixed-fee licensing is its optimal strategy. The results show that when the manufacturer adopts contingent sourcing, S1 is always willing to license its technology to S2 and fixed-fee licensing is the optimal strategy. However, when dual sourcing is adopted, either royalty and fixed-fee licensing could be S1's optimal licensing strategy, depending on the reliability degree of the suppliers’ productions. Our findings extend the conclusion from previous researchers about royalty and fixed-fee licensing in a Cournot duopoly model.     

Study on suppliers’ flexibility in supply chains: is real-time control necessary?

In a supply chain, the suppliers’ flexibility is considered as a tool to cope with the environmental uncertainties. Flexible suppliers are capable of supplying/processing other jobs in addition to the one for which they are the original supplier. In a cluster of flexible suppliers, it is expected that flexibility of suppliers be utilized more expressively through better control of the supply chain. The online real-time information system is considered as one of the tools for effective control of the supply chain. However, in a cluster of flexible suppliers, the physical and operating characteristics of alternative suppliers (available by virtue of suppliers’ flexibility) may vary from each other for doing the same operation, which may result in a different lead-time to process the same job. This paper presents a simulation study on suppliers’ flexibility level (SFL) in relation to information system automation level of the supply chain and physical characteristics of the flexible suppliers. This paper contributes an approach for decision-makers to identify the information system automation level and variations in physical characteristics of the alternative suppliers with respect to suppliers’ flexibility level that can help in improving the overall delivery lead-time. A decision-maker can reach a trade-off between benefits obtained from supplier's flexibility and the investment required to have a suitable information system automation level and physical characteristics of suppliers. Results of simulation study show that if automation level of information system is not matching to the suppliers’ flexibility level then supplier's flexibility may become counterproductive. Further, a relative change in physical characteristics of the alternative flexible suppliers as compared to the original supplier is more than a certain limit then suppliers’ flexibility may again be counterproductive. However, a cost intensive real-time information system may not be needed when suppliers’ flexibility levels are lower. Study identifies the productive and counterproductive performance regions for suppliers’ delivery lead-time.     

Incentives for quality improvement efforts coordination in supply chains with partial cost allocation contract

In this paper, we consider quality improvement efforts coordination in a two-stage decentralised supply chain with a partial cost allocation contract. The supply chain consists of one supplier and one manufacturer, both of which produce defective products. Two kinds of failure cost occur within the supply chain: internal and external. The supplier and the manufacturer determine their individual quality levels to maximise their own profits. We propose a partial cost allocation contract, under which the external failure cost is allocated between the manufacturer and the supplier at different rates based on information derived from failure root cause analysis. If the quality levels of the supplier and the manufacturer are observable, we show that the partial cost allocation contract coordinates the supply chain, provided that the failure root cause analysis does not erroneously identify the manufacturer’s fault as the supplier’s, and the supplier does not take responsibility for the manufacture’s fault. In the single moral hazard model, where only the quality level of the supplier is unobservable, the optimal share rates require the supplier to take some responsibility for the manufacture’s fault. However, in the double moral hazard model, where quality levels of the supplier and the manufacturer are unobservable to each other, the optimal share rates require the supplier not to take responsibility for the manufacturer’s fault. It is noted that the root cause analysis conducted by the manufacturer may have its disadvantage in attributing the fault to the supplier when both sides are at fault. We also propose a contract based on the dual root cause analysis to reduce the supplier’s penalty cost. Numerical results illustrate that the partial cost allocation contract satisfies the fairness criterion compared with the traditional cost allocation contract.     

供应不确定下制造商的采购策略:回收或双渠道采购

在考虑供应商供应不确定的情形下,构建制造商在不同市场结构下的采购策略选择模型,研究发现:①垄断市场中,当供应不确定性较大时,制造商会选择回收策略;当供应商的不确定性较小时,制造商选择双渠道采购。②竞争市场中对比制造商的均衡利润发现,当供应商供应不确定性大时,两制造商均选择回收策略达到纳什均衡;当供应不确定性处于中间水平时,两制造商选择差异化的采购策略更有利可图;当供应商供应不确定性小时,上游供应商之间的竞争激烈,双渠道采购为市场的均衡策略。此外,还探讨了供应不确定性的变化对制造商的利润影响。     

Maintenance supplier selection considering life cycle costs and risks: a fuzzy goal programming approach

In this study, we address a new variant of supplier selection problem named maintenance supplier selection problem faced by a manufacturer. The production system consists of different multi-component equipments whose maintenance activities require several components (parts) each of which could be provided by multiple suppliers. A multi-objective mathematical model is developed to decide about the supply base of each part as well as the purchasing quantity of each part from each selected supplier. The model accounts for the total life cycle costs of purchased parts and various risks threatening the candidate suppliers. A fuzzy/soft lexicographic goal programming approach with soft priorities between objectives is proposed to enable the decision-maker to make preferred trade-offs between objectives by which the effects of various risks in each phase of life cycle of procured parts are investigated. The capability and effectiveness of the proposed model is validated through a case study. Some sensitivity analyses are also carried out for investigating the impact of cost, risk and objectives’ priorities on the final preferred compromise solution. Finally, some managerial insights and concluding remarks are provided.     

基于讨价还价博弈的ATO供应链零部件生产及补货策略

通过建立ATO供应链中最终产品制造商与其两个供应商间的讨价还价合作模型,研究了ATO供应链的零部件生产补货策略和相应的利润分配策略,并探讨了供应链中各合作主体议价能力对最优解的影响。研究发现,ATO供应链应随着最终产品销售价格的提高而增加零部件产量,随最终产品组装成本或零部件生产成本的提高而减少零部件产量;随着最终产品制造商对其中一个供应商议价能力的增强,该供应商零部件的转移价格及其利润会降低,而另外一个供应商的零部件转移价格和利润会提高;若最终产品制造商比另外一个供应商的议价能力强,其期望利润会得到提高,反之,则会降低。     

Pricing decisions in a strategic single retailer/dual suppliers setting under order size constraints

In this paper, we study a duopolistic market of suppliers competing for the business of a retailer. The retailer sets the order cycle and quantities from each supplier to minimize its annual costs. Different from other studies in the literature, our work simultaneously considers the order size restriction and the benefit of order consolidation, and shows non-trivial pricing behaviour of the suppliers under different settings. Under asymmetric information setting, we formulate the pricing problem of the preferred supplier as a non-linear programming problem and use Karush–Kuhn–Tucker conditions to find the optimal solution. In general, unless the preferred supplier has high-order size limit, it prefers sharing the market with its competitor when retailer’s demand, benefit of order consolidation or fixed cost of ordering from the preferred supplier is high. We model the symmetric information setting as a two-agent non-zero sum pricing game and establish the equilibrium conditions. We show that a supplier might set a ‘threshold price’ to capture the entire market if its per unit fixed ordering cost is sufficiently small. Finally, we prove that there exists a joint-order Nash equilibrium only if the suppliers set identical prices low enough to make the retailer place full-size orders from both.     

Optimal acquisition policy with quantity discounts and uncertain demands

We study the acquisition policy decision problem for a supply network involving one manufacturer and multiple suppliers. The manufacturer produces multiple products under uncertain demands and each supplier provides price discounts. The problem is to determine the manufacturer's acquisition policy and production levels so as to maximise the manufacturer's expected profit, subject to both the manufacturer's and suppliers’ capacities. We present a mixed integer nonlinear programming (MINLP) formulation of the problem, for both single- and multiple-sourcing procurement policies. General algebraic modeling system (GAMS) and its solvers, combining external integration functions, are employed to solve the complex MINLP problem. The preliminary computation results and managerial analysis are reported.     

基于排队论的智能快递柜格口定价策略

运用排队论方法,将智能快递柜的大、小格口服务系统抽象成M/M/n/n损失制排队系统,构建快递柜供应商的收益模型。通过数值实验,探寻供应商利润最大时的格口定价策略,并探讨相关参数对供应商利润和格口价格的影响。结果表明,在设置与服务区域快递需求数量相匹配的格口数量及一定的快递柜广告收益保障下,当前0.3~0.6元/次的格口价格可以适当降低,供应商没有必要或不应该向用户收取正常使用的费用,从而保证供应商、快递员使用快递柜的合理收益,提升使用快递柜的意愿。     

An integrated optimal inventory lot-sizing and vehicle-routing model for a multisupplier single-assembler system with JIT delivery

In a manufacturing system, a just-in-time (JIT) procurement and supply system is important for reducing cost and responding to customer’s requirement quickly. Successful implementation of a JIT system needs supplier/manufacturer cooperation in small lot-size delivery and inbound logistics cost reduction. In this study, an integrated optimal model of inventory lot-sizing vehicle routing of multisupplier single-manufacturer with milk-run JIT delivery is established. A novel method for computing transportation cost is proposed. Because the integrated model is a NP-hard problem, a meta-heuristic algorithm of ant colony optimisation is developed for solving the model. Numerical examples are used to demonstrate and test the effectiveness of the model and the algorithm. The results show that integrated model with milk-run delivery can reduce the total cost and realise the JIT production and procurement philosophy which emphasises small lot-size production and delivery. The results highlight the importance of cooperation between suppliers and manufacturers in JIT production practices.     

Comparing the lens displacement profile data by using the sequential approach for selecting alternative suppliers

The lens module is a critical part of the camera module. The quality of the lens module significantly influences the auto-focus and image stability functions of the camera module. A new approach that uses sequential tests is proposed to select the alternative suppliers that provide the qualified parts as the current supplier under the linear profile data. Having several qualified alternative suppliers can reduce the dependency on one supplier, improve bargaining power, and reduce capacity risk. The lens displacement that has a linear relationship with current is the quality characteristic for evaluating the lens module suppliers. To select the qualified alternative suppliers, the proposed sequential approach tests the profile difference between the current supplier and the investigated suppliers. The simulation results show that the power of the sequential approach is higher than the simultaneous confidence bands method in differentiating profiles. Last, the proposed approach is effectively applied to select the qualified alternative lens module suppliers for the camera module manufacturer. Procuring the lens module from the selected suppliers can maintain production quality and flexibility for the camera module manufacturer in practice.     

A hybrid VNS-HS algorithm for a supply chain scheduling problem with deteriorating jobs

This paper investigates a coordinated scheduling problem in a two stage supply chain where parallel-batching machine, deteriorating jobs and transportation coordination are considered simultaneously. During the production stage, jobs are processed by suppliers and there exists one parallel-batching machine in each supplier. The actual processing time of a job depends on its starting time and normal processing time. The normal processing time of a batch is equal to the largest normal processing time among all jobs in its batch. During the transportation stage, the jobs are then delivered to the manufacturer. Since suppliers are distributed in different locations, the transportation time between each supplier and the manufacturer is different. Based on some structural properties of the studied problem, an optimal algorithm for minimising makespan on a single supplier is presented. This supply chain scheduling problem is proved to be NP-hard, and a hybrid VNS-HS algorithm combining variable neighbourhood search (VNS) with harmony search (HS) is proposed to find a good solution in reasonable time. Finally, some computational experiments are conducted and the results demonstrate the effectiveness and efficiency of the proposed VNS-HS.     

Optimal reservation pricing strategy for a fashion supply chain with forecast update and asymmetric cost information

We address the reservation pricing problem for a two-echelon fashion supply chain in which the downstream manufacturer with private information on its operations cost (low or high type) reserves the capacity for a critical component from the upstream supplier before placing the final order. We consider the case when the demand forecast is partially updated. We find that a novel menu of reservation contracts containing the unit reservation fee with reservation quantity and final order could induce the manufacturer to reveal its operations cost information truthfully. We also show that the supplier should require less capacity reservation and charge a lower unit reservation fee if it has asymmetric information about the manufacturer’s operations cost. Finally, we analyse the effects of forecast update, and our results indicate that: (i) the supplier benefits from forecast update because the optimal reservation pricing strategy is designed to reveal the true information and meanwhile induce a higher capacity reservation; and (ii) a greater amount of forecast update decreases the supply chain deficit and increases the supplier’s agency cost.     

Supply management in assembly systems with random yield and random demand

In this paper, we consider an assembly system where a firm faces random demand for a finished product which is assembled using two critical components. The components are procured from the suppliers who, due to production yield losses, deliver a random fraction of the order quantity. We formulate the exact cost function where the decision variables are the target level of finished products to assemble, and the order quantity of the components from the suppliers. Since the exact cost function is analytically complex to solve, we introduce a modified cost function and derive bounds on the difference in the objective function values. Using the modified cost function, we determine the combined component ordering and production (assembly) decisions for the firm. The benefit of coordinating ordering and assembly decisions is numerically demonstrated by comparing the results with two heuristic policies commonly used in practice. In an extension to the model, we consider the case when the firm has the added option of ordering both the components in a set from a joint supplier. First, we consider the case when the joint supplier is reliable in delivery and obtain dominance conditions on the suppliers to be chosen. The maximum price a firm would be willing to pay to ensure reliable supply of components is determined. Later, we consider the uncertainty in the deliveries from the joint supplier and determine conditions under which there is no diversification, that is, either the individual suppliers are used, or the joint supplier is used, but never both.     

A basic model for co-ordinating a four-level supply chain of a product with a vendor,multiple buyers and tier-1 and tier-2 suppliers

This paper investigates the co-ordination of order quantities amongst the players in a four-level supply chain with a centralised decision process. The first level of the supply chain consists of multiple buyers, the second level of a vendor (manufacturer), the third level consists of multiple tier-1 suppliers, and the fourth level consists of multiple tier-2 suppliers. Each supplier supplies one or more items that are components of the product produced by the manufacturer. The model developed in this paper guarantees that the local costs for the players either remain the same as before co-ordination, or decrease as a result of co-ordination. A mathematical model is developed, with numerical examples presented and results discussed.     

A cash-constrained stochastic inventory model with consumer loans and supplier credits: the case of nanostores in emerging markets

We consider a small traditional retailer that is managing its inventory under strict cash constraints, mainly because typically informal loans are offered to customers. These stores are widely present in emerging markets, and we refer to them as nanostores (also called ‘mom-and-pop stores’). As the suppliers require immediate payments for goods delivered, a nanostore can only replenish products to the level for which it has on-hand cash available. To improve delivery efficiency, a supplier might offer a nanostore credit for its replenishments. However, currently, suppliers are often reluctant to do so as these nanostores quickly go bankrupt or disappear, hence defaulting on all outstanding credits. The objective of this paper is to determine when it is beneficial to offer supplier credits. We propose a multi-period, stochastic inventory model, and numerically compare scenarios with and without supplier credits. Our study shows that even in the presence of this risk, suppliers often have good incentives to provide these credits, even if interest is not incurred. For this to hold, the operations of the retailer should be (a little) profitable in the first place, for which we provide analytical conditions.