Tiaojun Xiao

Demand disruption and coordination of the supply chain with a dominant retailer

This paper develops two coordination models of a supply chain consisting of one manufacturer, one dominant retailer and multiple fringe retailers to investigate how to coordinate the supply chain after demand disruption. We consider two coordination schedules, linear quantity discount schedule and Groves wholesale price schedule. We find that, under the linear quantity discount schedule, the manufacturer only needs to adjust the maximum variable wholesale price after demand disruption. For each case of the disrupted amount of demand, the higher the market share of the dominant retailer, the lower its average wholesale price and the subsidy will be under the linear quantity discount schedule, while the higher its fraction of the supply chains profit will be under Groves wholesale price schedule. When the increased amount of demand is very large and production cost is sufficiently low, linear quantity discount schedule is better for the manufacturer. However, when the production cost is sufficiently large, Groves wholesale price schedule is always better. We also find that the disrupted amount of demand largely affects the allocation of the supply chains profit.

Coordination of a Supply Chain with One-Manufacturer and Two-Retailers Under Demand Promotion and Disruption Management Decisions

Increasingly, customer service, rapid response to customer requirements, and flexibility to handle uncertainties in both demand and supply are becoming strategic differentiators in the marketplace. Organizations that want to achieve these benchmarks require sophisticated approaches to conduct order promising and fulfillment, especially in today’s high-mix low-volume production environment. Motivated by these challenges, the Available-to-Promise (ATP) function has migrated from a set of availability records in a Master Production Schedule (MPS) toward an advanced real-time decision support system to enhance decision responsiveness and quality in Assembly To Order (ATO) or Configuration To Order (CTO) environments. Advanced ATP models and systems must directly link customer orders with various forms of available resources, including both material and production capacity. In this paper, we describe a set of enhancements carried out to adapt previously published mixed-integer-programming (MIP) models to the specific requirements posed by an electronic product supply chain within Toshiba Corporation. This model can provide individual order delivery quantities and due dates, together with production schedules, for a batch of customer orders that arrive within a predefined batching interval. The model considers multi-resource availability including manufacturing orders, production capability and production capacity. In addition, the model also takes into account a variety of realistic order promising issues such as order splitting, model decomposition and resource expediting and de-expediting. We conclude this paper with comparison of our model execution results vs. actual historical performance of systems currently in place.

Supply chain disruption management and evolutionarily stable strategies of retailers in the quantity-setting duopoly situation with homogeneous goods

Abstract This paper develops an indirect evolutionary game model with two-vertically integrated channels to study evolutionarily stable strategies (ESS) of retailers in the quantity-setting duopoly situation with homogeneous goods and analyzes the effects of the demand and raw material supply disruptions on the retailers’ strategies. Every channel consists of one manufacturer and many (a sufficiently large number of) retailers that sell products in different markets by adopting two pure marketing strategies: profit maximization and revenue maximization. We find that revenue maximization strategy may prevail and profit maximization strategy may become extinct. Two strategies may coexist, i.e., all retailers in one channel will choose profit maximization strategy and all retailers in the other will choose revenue maximization strategy. The ESS of retailers depends on the relative size of the market scale and unit cost. The supply chain disruptions affect the ESS of retailers. We also introduce a recovery model of the supply chain under disruptions and illustrate the effect of disruptions on the ESS and on the average profits of channels in a market using a numerical simulation.

Product variety and channel structure strategy for a retailer-Stackelberg supply chain

Motivated by the observations that the direct sales channel is increasingly used for customized products and that retailers wield leadership, we develop in this paper a retailer-Stackelberg pricing model to investigate the product variety and channel structure strategies of manufacturer in a circular spatial market. To avoid channel conflict, we consider the commonly observed case where the indirect channel sells standard products whereas the direct channel offers custom products. Our analytical results indicate that if the reservation price in the indirect channel is sufficiently low, adding the direct channel raises the unit wholesale price and retail price in the indirect channel due to customization in the direct channel. Despite the fact that dual channels for the retailer may dominate the single indirect channel, we find that the motivation for the manufacturer to use dual channels decreases with the unit production cost, while increases with (i) the marginal cost of variety, (ii) the retailer’s marginal selling cost, and (iii) the customer’s fit cost. Interestingly, our equilibrium analysis demonstrates that it is more likely for the manufacturer to use dual channels under the retailer Stackelberg channel leadership scenario than under the manufacturer Stackelberg scenario if offering a greater variety is very expensive. When offering a greater variety is inexpensive, the decentralization of the indirect channel may invert the manufacturer’s channel structure decision. Furthermore, endogenization of product variety will also invert the channel structure decision if the standard product’s reservation price is sufficiently low.

Risk sharing and information revelation mechanism of a one-manufacturer and one-retailer supply chain facing an integrated competitor

This paper develops an information revelation mechanism model of a one-manufacturer and one-retailer supply chain facing an outside integrated-competitor under demand uncertainty. We investigate how the manufacturer designs a wholesale price-order quantity contract to induce the retailer to report his risk sensitivity information truthfully. We try to explore the effects of the outside competitor and the risk-sharing rule on the optimal price-service level decisions of the retailer and the optimal wholesale prices of the manufacturer. We find that the strategic interaction plays an important role in the effect of risk sensitivity on the order quantity for the retailer. When the fraction of the risk cost shared by the manufacturer is sufficiently large (small), the optimal wholesale price for the high risk-averse retailer is higher (lower) than that for the low risk-averse retailer.

Coordinating a two-supplier and one-retailer supply chain with forecast updating

We consider the component-purchasing problem for a supply chain consisting of one retailer and two complementary suppliers with different lead-times. The retailer purchases a specific component from each supplier for assembling into a fashionable product. After ordering from the long-lead-time supplier (Supplier 1) and before ordering from the short-lead-time supplier (Supplier 2), the retailer can update its demand forecast for the product. The retailer can partially cancel its order from Supplier 1 after forecast updating. By formulating the problem as a dynamic optimization problem, we explore the measures that can be deployed to coordinate the retailers ordering decisions with forecast updating. We analytically show that the supply chain can be coordinated if both suppliers offer a returns policy and Supplier 1 charges an order-cancelation penalty to the retailer. We find that the coordination mechanism is independent of demand distribution and the forecast updating process. We further show that it is easier for the suppliers to coordinate the supply chain if market observation indicates the future market demand is sufficiently large. We also study the case where demand is price-dependent and propose a generalized revenue-sharing contract to coordinate the supply chain. We discuss the academic and managerial implications of the theoretical findings.

Ordering, wholesale pricing and lead-time decisions in a three-stage supply chain under demand uncertainty

This paper develops a game theoretic model of a three-stage supply chain consisting of one retailer, one manufacturer and one subcontractor to study ordering, wholesale pricing and lead-time decisions, where the manufacturer produces a seasonal/perishable product. We explicitly model the effects of the lead-time and the length of selling season on both demand uncertainty and inventory-holding costs. We present the equilibrium outcome of the decentralized supply chain. When the lead-time increases, we find that the retailer increases the order quantity, the manufacturer offers a lower unit-wholesale price and the subcontractor decreases its unit-wholesale price if the manufacturer subcontracts part of the retailers order. In the endogenous lead-time setting, we illustrate the effects of some factors such as unit holding cost and capacity on the equilibrium outcome. We find that a higher unit holding cost implies a lower optimal lead-time and order quantity while higher unit-wholesale prices; the basic demand uncertainty increases the optimal lead-time and order quantity while decreases the unit-wholesale prices. The effects of distribution form on equilibrium outcome/profits are investigated by employing a numerical example. The profit loss of decentralization decreases (increases) with the basic demand uncertainty and manufacturers capacity (mean demand).

Coordinating a supply chain with a quality assurance policy via a revenue-sharing contract

This paper explores coordination of a (global) supply chain consisting of one manufacturer and one retailer via a revenue-sharing contract, where a product quality assurance policy is provided and the utility of consumer is sensitive to product (physical) quality, service quality (i.e., reciprocal of delivery lead-time) and retail price. We assume that the supply chain operates in a make-to-order (MTO) environment and a defective product is returned to the manufacturer for remanufacturing free. We give the optimal service quality and pricing decisions of the decentralised supply chain, its coordination mechanism and the Pareto condition of coordination mechanism. In the decentralised setting, although a higher defective rate of the final product implies a higher cost for the manufacturer, the optimal service quality first decreases and then increases and the optimal retail price decreases as the defective rate increases, which differs from the effects of the unit remanufacturing cost due to the service reliability constraint and the effects of the defective rate on the market scale and lead-time sensitivity; when the supply chain is coordinated, comparing to the traditional models without considering service quality, the manufacturer charges the retailer a higher unit wholesale price. The effect of the defective rate on the Pareto range of coordination mechanism is inconsistent with that of the unit production cost because the defective rate directly influences the demand rate.

Pricing, service level and lot size decisions of a supply chain with risk-averse retailers: implications to practitioners

This article develops a game theoretic model of a supply chain with one supplier and two risk-averse retailers competing in price, service and lot size, where the Economic Order Quantity (EOQ) production-inventory policy is adopted. After studying the existence of EOQ equilibrium, we investigate how to adjust their decisions when the economic environment changes. We find that one retailer will decrease its optimal lot size, retail price and service level when it becomes more risk averse or its service investment efficiency decreases. When the suppliers capacity increases, the retailers will reduce retail price and increase service level, which in turn results in a higher lot size. The effect of the risk sensitivity of one retailer on the rival retailers decisions depends on the relative service cost efficiency of the retailer. When the absolute risk aversion and service investment efficiency of one retailer increase, the suppliers profitability will increase due to a higher total expected demand. We further give the managerial insights for practitioners, which helps managers to make right decisions in an uncertain environment.

A two-stage supply chain with demand sensitive to price, delivery time, and reliability of delivery

We consider a two-stage supply chain with one supplier and one manufacturer. The manufacturer faces a Poisson demand process where the arrival rate depends on the selling price, the announced delivery time, and the delivery reliability defined as the probability of satisfying the announced delivery time. Such a demand model generalizes the works in the literature by simultaneously considering the above three demand sensitivity factors. The main purpose of this paper is to study the equilibrium decisions in the supply chain with an all-unit quantity discount contract. We consider four scenarios regarding whether the leadtime standard, the delivery reliability standard, and the manufacturer’s capacity are endogenous, and whether the manufacturer’s production cost is its private information. We find that an all-unit quantity discount scheme can coordinate the supply chain for most cases. Managerial insights are observed regarding the impact of the three demand sensitivity factors. For example, the breakpoint in an optimal quantity discount contract always increases with the delivery reliability sensitivity under an exogenous delivery reliability, but may decrease under an endogenous delivery reliability; with asymmetric information, a higher variance of the manufacturer’s unit production costs leads to a lower unit wholesale price for the low-cost manufacturer.