Supply contract design under price volatility and competition

This study analyses index-based contract designs and contract equilibria in a competitive setting. We consider a two-echelon supply chain consisting of two manufacturers and a retailer. Each manufacturer procures a commodity in a spot market and uses such a commodity to produce a product. The manufacturers initially choose either an index-based or fixed-price contract. Thereafter, the manufacturer that adopts an index-based contract designs the contract price on the basis of the spot and forward prices of its input commodity. Finally, the two products are sold through the common retailer. Our analysis indicates that an index-based contract provides a manufacturer with a contingent pricing mechanism, thereby enabling the contract price to respond to the spot price of its input commodity. If only one manufacturer adopts an index-based contract, then the contract price is designed to respond positively to the corresponding spot price, while the contract design constantly benefits the designer but may either benefit or hurt the rival and retailer. If both manufacturers adopt an index-based contract, then the contract price may be designed to respond negatively to the corresponding spot price. The reason is that the manufacturer intends to dampen competition by adopting an opposite contract price design. Further study shows that in equilibrium, both manufacturers consistently adopt an index-based contact if the spot prices are positively correlated. However, differentiated contract strategies may be optimal for manufacturers if the correlation is negative.     

Managing supply disruption through procurement strategy and price competition

When facing supply disruptions, the emergency procurement strategy and the optimal allocation procurement strategy are widely used strategies to manage supply risks. In this paper, buyers use these types of procurement strategies under the threat of supply disruption and engage in price competition. The structural properties of the procurement strategies are characterised by their reliability thresholds. We find that reliability thresholds play a critical role in buyer procurement strategy choices, which are related to the sales price, underage cost and differentials in unit procurement cost. A solution procedure is proposed to determine the equilibrium strategy profile. The effects of reliability levels and costs on the equilibrium prices, expected profits and equilibrium strategy profiles are explored. We extend the basic model to investigate the case of symmetric competition where buyers can freely choose their procurement strategy. The results show that in most cases, the competing buyers will choose the same strategy, whether an optimal allocation strategy with single sourcing or an emergency procurement strategy with dual sourcing. In a special parameter setting, the buyers will choose either strategy because they yield identical expected profits; this leads to multiple equilibria. We also find the equilibrium to be Pareto efficient.     

Parallel importation and price competition in a duopoly supply chain

Nowadays, diversion of products distribution from authorised channels to the gray markets is one of the main challenges of manufacturers. Suppose an international supplier distributes the products in several countries with different prices. In parallel importation, there are unauthorised distributers who supply products with a lower price and import them to a higher price market. The problem of parallel importation considering a manufacturer and a competitor is analysed using the game theory approach in this article. We investigate the pricing strategy for manufacturers and the effect of unauthorised distributer on price, market share and profit. We also investigate the performance of different policies in a numerical study and show managerial insights.     

Coordination of dual-channel supply chains under demand disruptions management decisions

This paper examines optimal decisions and coordination models for a dual-channel supply chain when the two end competition market demands are simultaneously disrupted. Firstly, we developed the pricing and production decisions models without demand disruptions and propose a revenue sharing contract to coordinate the dual-channel supply chain where the manufacturer is a Stackelberg leader and the retailer is a follower. We derived the conditions under which the maximum profit can be achieved in detailed. We compared the profits under normal case and disrupted case and quantified the information value of knowing demand disruptions. We proposed an improved revenue sharing contract to coordinate the dual-channel supply chain with demand disruptions. The results indicate that the adjusting prices and production quantity are the optimal decisions whether the demand disruptions case or normal case. We also find that the original revenue sharing contract is a special case of improved revenue sharing contract and the market scale change, channel substitutability and deviation cost affected the improved revenue sharing contract under demand disruptions. Finally, we further conduct numerical experiments to show how the demand disruption affects the decisions.     

A pricing/ordering model for a dyadic supply chain with buyback guarantee financing and fairness concerns

The paper investigates pricing/ordering issues in a dyadic supply chain, in which a core supplier sells products through a budget-constrained retailer. The retailer faces stochastic demand and is fairness-concerned as well. If needed, the retailer can get financing support from bank by means of buyback guarantee financing (BGF) mode, which is often used in China. By introducing Nash bargaining solution as the fairness reference point, we formulate the retailer’s fairness-concerned utility function and develop a two-echelon pricing/ordering game model. We then study the combined impacts of fairness concerns and BGF on two members’ equilibrium strategies and supply chain performance. We also discuss the corresponding issues under no budget constraint, no financing service and bank financing. Our results show that: (1) two members’ equilibrium strategies are significantly influenced by the retailer’s fairness-concerned behaviour and initial budget; (2) as compared to no budget constraint, BGF can bring the whole supply chain more performance, which means that BGF can yield value-added; (3) When the retailer takes the risk of uncertain market solely, the retailer’s fairness concerns are beneficial for supply chain to improve the performance.     

Reliability improvement and production decision under Cournot competition

We consider two competing manufacturers who are unreliable and exert effort endogenously to improve their reliability within a dynamic decision framework. The manufacturers first decide the optimal level of effort and then input quantities after observing improvement outcomes. We explore the relationship between optimal input quantity and realised reliability, and find that the balance between two effects – price reduction effect and cost reduction effect – plays an important role. When market potential is low, the cost reduction effect dominates the price reduction effect, resulting in that the optimal input quantity increases in the realised reliability. The opposite situation is true when the market potential is high. By further examining the interaction between competition and reliability improvement, we find that the competition reduces the effort level of reliability improvement and this impact increases in the probability of the improvement success. In terms of expected input quantity, the reliability improvement intensifies competition with lower market potential but weakens competition with higher market potential. While in terms of expected output quantity to the market, the improvement behaviour of each competitor always intensifies competition by reducing the output inefficiency caused by random yield.     

Optimal piecewise-constant price under heterogeneous sensitivity to product freshness

When perishable products are priced uniformly, regardless of the amount of time remaining until expiration, consumers may gravitate towards fresher products, leaving some inventory unsold. This research considers dynamic pricing policies as well as replenishment policies in the context of perishable products with a fixed shelf life. Consumers are assumed to be heterogeneous in their sensitivity to freshness, i.e. their willingness to pay more for fresher products. We develop a model for identifying an optimal (profit-maximising) dynamic pricing policy and for evaluating the extent to which both the retailer and the consumer benefit from the implementation of a dynamic pricing policy as opposed to a static policy. The model assumes that the retailer is able to utilise knowledge regarding the heterogeneous characteristics of incoming customers (e.g. the retailer can gather specific information about customers’ historical purchases). Unexpectedly, it is proven that in an optimal pricing policy, the retailer should assign a lower price to fresher products and then raise the price as the products approach expiration. A numerical illustration shows that profits are strongly influenced by the volatility of consumer sensitivity to freshness; specifically, this variable has the potential to reduce optimal profits by up to 8%.     

Procurement models under purchase price uncertainty for Chinese oil refineries

This paper examines the crude oil procurement practices of Chinese oil refineries to suggest improved procurement policies that can reduce the cost associated with fluctuating oil prices in the international spot market. In the industrial environment, the purchase price of crude oil is based on the spot price at the time of delivery rather than that at the time of ordering. Therefore, the purpose of this paper is to develop a procurement model that factors in the spot prices at both the time of ordering and the time of delivery so that the total procurement cost can be minimised over the planning horizon. First, the shortcomings of the current procurement policy of a typical Chinese refinery are presented. A model to address these shortcomings is then developed and embellished by incorporating market information dynamics through Bayesian learning. The effectiveness of the proposed models is compared with the current practice using the historical spot price data of crude oil from two representative spot markets; this comparison verifies that the model with Bayesian sampling performs well empirically and can result in considerable cost savings.     

Offshore manufacturing contract design based on transfer price considering green tax: a bilevel programming approach

The problem of designing offshore manufacturing contract resulting in optimal transfer price is troubling multinational companies over the past few years. This paper proposes designing offshore manufacturing contracts based on the transfer price in the form of bilevel programming problems after considering green tax. In these contract designs, a firm in a developed country sells a single product in its market. The same product is simultaneously being manufactured by another firm in a developing country with lower manufacturing cost. After anticipating the consumer demand, the seller places an order, based on which the manufacturer manufactures the ordered quantity, and offers a transfer price which in turn maximises its net profit after paying green tax to its government. While setting the transfer price, the manufacturer considers the manufacturing cost, the export duty payable to its government and the cost of shipping the product to the developed country. After buying the product from the manufacturer at the transfer price, the seller then sets the retail price which maximises its net profit after paying the import duty to its government; the retail price, however, must not be more than the maximum retail price applicable to the market. Thus, offshore manufacturing contract results in optimal after-tax profits for both the firms. An experimental study has been carried out to discuss the practical aspects of the results developed, where a US firm is offshoring its manufacturing activity to a Chinese firm in order to draw maximum profit.     

供需双重不确定下链与链竞争的博弈分析

研究了分别由1个零售商和1个供应商构成的两条供应链之间的竞争问题,讨论了供应中断风险和需求不确定对于竞争的供应链的影响。分析了协调竞争、混合竞争、非协调竞争3种供应链结构下的最优订货量和契约参数。研究发现在一定的收益共享系数范围,供应链协调竞争成立。最后通过数值计算,分析了参数对最优订货量的影响,得到了管理启示。     

Return policy in product reuse under uncertainty

One complicating factor in a reverse logistics activity is the uncertainty in the volume of the reverse product flow coupled with uncertain demand. These uncertainties are creating a problem for the reuse businesses because, in order to have a profitable business, their plants need some minimum number of used products to operate efficiently. Several researches have indicated that there is a significant quantity of used products that failed to enter the reverse channel. Therefore finding a way to ensure supply of used products is essential for the viability of the plant. In this paper, we propose the use of financial incentives (also referred to as ‘return policy’) so that adequate supply of the used products is ensured. We present a profit-maximisation model to obtain the optimal return policy. We also obtain a number of managerial guidelines for using marketing and operational strategy variables to influence the reaction parameters so as to obtain the maximum benefit from the market.     

The value of Blockchain technology implementation in international trades under demand volatility risk

The extant literature has conceptually argued that Blockchain technology can provide both financial and operational benefits to firms in international trades. However, no studies have systematically and analytically investigated the effectiveness of Blockchain. This study introduces analytical models that consider the implementation of Blockchain technology in international trades, to test whether the technology improves an exporting firm's performance under demand volatility risk. The simulation and numerical analysis results show that the reduced lead time and decreased ocean transport cost under Blockchain enable the exporting firm to increase shipment via the ocean, which reduces the quantity shipped via air. In addition, the reduced total unit cost for ocean and air transports leads the firm to effectively reserve spaces for air transport, which implies that Blockchain makes the firm more proactive while preparing a backup plan to more effectively and efficiently react to demand realisation. We conclude that Blockchain can be beneficial for firms facing considerable demand volatility in international trades, and that such effectiveness could be more effective for firms that prioritise minimising lost sales (by efficiently utilising ocean and effectively exploiting air) over minimising excess quantity shipped by ocean.     

The impact of consumer price forecasting behaviour on the bullwhip effect

As prices fluctuate over time, a strategic consumer may buy more in advance to reduce his or her future needs in anticipation of higher prices in the future, or may choose to postpone a purchase in anticipation of lower prices in the future. We investigate the bullwhip effect from a consumer price forecasting behavioural perspective in the context of a simple two-level supply chain composed of a supplier and a retailer. We consider two different forms for the demand function – linear and iso-elastic demand functions, both depending on the prices in multiple periods. Assuming that the retailer employs an order-up-to inventory policy with exponential smoothing forecasting technology, we derive analytical expressions for the bullwhip effect under the two demand functions, and extend the results to the multiple-retailer case. We find that consumer forecasting behaviour can reduce the bullwhip effect, most significantly when the consumer sensitivity to price changes is medium (approximately 0.5) for both the demand forms. In addition, for iso-elastic demand, the mitigation of the bullwhip effect induced by consumer price forecasting behaviour becomes more significant as the product price sensitivity coefficient and standard deviation of the price decrease. These findings are applicable to the development of managerial strategies by supply chain members that are conducive to bullwhip effect reduction through customer behaviour.     

Real-time procurement policy with yield and price uncertainty

This study formulates and analyses a procurement model in which a procurer faces both yield and price uncertainty. We propose a simple and effective real-time procurement policy where the decisions are made only based on the current arriving price and inventory level. The only information we need is the first two moments for the random yield rate, and the lower and upper bounds for price. Thus, our policy delivers robust performance to changing yield and price over time. In addition, simple decision rules are summarised for determining the optimal procurement quantity for different cases. Analytical results and numerical experiments are presented to show that the proposed policy achieves a superior performance guarantee.     

The value of trade credit with rebate contract in a capital-constrained supply chain

We investigate the value of an innovative trade credit with rebate contract (TCRC) model in a stylised supply chain. In this supply chain, the capital-abundant manufacturer offers an integrated contract involving trade credit, minimum ordering and sales rebate contract to a capital-constrained retailer. To highlight the value of the TCRC model, we compare it with a traditional trade credit financing (TTCF) model in a ‘selling to the newsvendor model’. First, we show that equilibrium strategies exist between the manufacturer and the retailer under the TCRC or TTCF model. Second, this study investigates equilibrium selection between the TCRC and TTCF models for the individual and the supply chain. Finally, we show the manufacturer’s pricing policy, wherein the TCRC model outperforms the TTCF model for the players. Furthermore, we conduct a set of numerical experiments to show evidence for theoretical analysis and measure the operation efficiency of the TCRC model for players in the supply chain.     

需求不确定下考虑顾客策略行为的易逝品定价策略

在市场需求不确定且顾客具有策略行为时，研究易逝品厂商动态定价和价格承诺策略。通过建立厂商和顾客的不完全信息博弈模型，分析了两竞争厂商在2种定价策略下的精炼贝叶斯均衡，求得了均衡定价和期望收益。利用数值分析进一步比较2种定价策略的最佳适用范围，并讨论了需求预期、顾客策略程度和顾客购买意愿对均衡结果的影响。研究表明，在动态定价策略下，当市场处于适度竞争时，顾客策略程度越大，厂商收益越大；顾客购买意愿适中时，动态定价策略更优；顾客策略程度适中，或顾客策略程度较大且需求预期也较大时，价格承诺策略更优。     

考虑价格和时间敏感性需求的两周期供应链鲁棒优化模型

在不确定需求下,考虑需求的时间和价格敏感性,研究两周期供应链定价及订货联合决策问题。利用分段函数构建需求的价格和时间敏感性,并采用区间不确定集描述需求不确定性。根据制造商是否给予零售商回扣,分别建立主从对策鲁棒优化模型,并转化为可解的数学规划。结果表明,需求不确定性以及需求的时间和价格敏感性对双方的定价、订货和利润具有影响。具有回扣的主从策略使双方获得更高利润,需求的不确定性以及需求的时间和价格敏感性增加会降低双方利润。     

工程量清单计价模式下的合同管理

自从1979年合同及相关的法律和法规颁布实施以来,我国工程建设合同法制建设和科学管理进入了一个崭新的阶段,但仍然存在许多值得探讨并有待解决的诸多问题,目前,工程管理整体水平低,合同意识薄弱,缺乏合同管理人才,很难严格履行合同是建筑业进一步发展所亟待解决的问题。合同是现代项目管理的一种手段和措施,可以通过合同促进工程管理良性运行。加强合同管理要用更科学的方法和更合理的思路和更有效的手段。     

Mitigating supply disruption with a backup supplier under uncertain demand: competition vs. cooperation

In case of supply disruption following major disasters, many supply chains tend to break down due to stock-outs and take a long time to recover. However, by keeping emergency sources of supply, some supply chains continue to function smoothly even after a major disaster. In this work, using a game-theoretic-framework, we consider a two-suppliers-one-retailer supply chain with price-dependent stochastic demand in which suppliers are prone to disruption. To investigate the impact of supply disruption we consider two models: SC model, in which the retailer does not maintain any emergency sources of supply against any supply disruption, and SCB model, in which the retailer maintains a backup supplier to mitigate the impact of supply disruption. We mainly focus on the pricing strategies of the suppliers and the mitigating strategies of the retailer under supply and demand uncertainty. We address two coordinating mechanisms to enhance supply chain performance. Our results indicate that in the presence of supply disruption, even with lower probabilities, the retailer would always prefer to take the advantage of a backup supplier and the optimal reserve quantity increases with disruption probabilities. We further investigate the scenario in which the suppliers would always prefer to cooperate with each other.     

Product quality choice in two-echelon supply chains under post-sale liability: insights from wholesale price contracts

This paper considers a two-echelon supply chain consisting of an upstream manufacturer (M) and a downstream Retailer (R) who transact intermediate products via a wholesale price contract. The supply chain provides an experience good to unit-demand consumers. M is liable for the harm caused by its products in a low quality state. A two-stage game model is built to describe how the supply chain operates. With the equilibrium and under certain assumptions, this paper finds that (1) in spite that post-sale product liability positively affects the wholesale price, M’s quality level, the contracted quantity and supply chain members’ profitability are independent of it; (2) when liability-related factors and M’s quality improvement efficiency change, the wholesale price serves as a medium for M and R to mutually share the ex ante expected liability cost, the demand loss caused by the ex ante expected consumer harm and the ex ante quality-improving cost; (3) in response to changes in liability-related factors, the quality performance is in conflict with the financial performance for both M and R, but this conflict disappears in the presence of a change in quality improvement efficiency. Managerial insights are also discussed.