Wenming Chung

Flexibility or cost saving? Sourcing decisions with two suppliers

This article studies a decentralized supply chain in which there are two suppliers and a single buyer.One supplieroffers the quantityflexibility (QF) contractto the buyer,while the other offers the cheaper price. Under the QF contract, the buyer does not assume full responsibility for the forecast, yet the supplier guarantees the availability of the forecasted quantity with additional buffer inventory. On the other hand, the price-only contract places full inventory burden on the buyer, but with a cheaper price. We study this problem from the buyer’s perspective and solve for the buyer’s optimal procurement and forecasting decisions. We identify areas where flexibility and cheaper price have an advantage, one over the other. Our results indicate that the buyer significantly benefits from having multiple sources of supply. We also find that, from the system’s standpoint, a multisupplier system may outperform a single-supplier supply chain under certain conditions. Interestingly, we observe that providing too much flexibility may benefit the low-price supplier rather than benefiting the QF supplier. We discuss the managerial implications and provide directions for future research opportunities.

An optimization model for phased supplier integration into e-procurement systems

Investment in e-procurement technologies has steadily increased in the past few years. Companies view these technologies as solutions to the problem of how to streamline the procurement process. Most companies find it necessary to integrate e-procurement technologies with their supply-base in a stepwise manner due to a large number of suppliers, varying levels of capabilities and the importance of suppliers, constrained resources, and the need to integrate various levels of e-procurement systems. However, research in e-procurement lacks a systematic tool to help firms to optimally integrate suppliers over a multiperiod horizon. This paper fills this gap by developing a multiperiod integer-programming model that assists managers to optimally integrate their supply base by considering a variety of factors that include integration costs, purchase amounts, purchase order frequencies, in addition to other constraints. We consider two scenarios that a firm can face: (i) the firm has all e-procurement technology levels in place before integrating with its suppliers; and (ii) the firm is still acquiring e-procurement technologies during the integration process with its suppliers. Results and sensitivity analyses from the two models are discussed and managerial implications are addressed.

Price markdown scheme in a multi-echelon supply chain in a high-tech industry

This paper studies the price markdown scheme in a supply chain that consists of a supplier, a contract manufacturer (CM), and a buyer (retailer). The buyer subcontracts the production of the final product to the CM. The CM buys the components from the supplier and charges the buyer a service fee for the final product produced. The price markdown is made possible by the supplier with the development of new manufacturing technologies that reduce the production cost for the sourced component. Consequently, the buyer adjusts the retail price in order to possibly stimulate stronger demand that may benefit both the supplier and the buyer. Under this scenario, we identify the optimal discount pricing strategies, capacity reservation, and the stocking policies for the supplier and the buyer. We also investigate the optimal inventory decision for the CM to cope with the price discount by considering both demand and delivery uncertainties. Our results suggest that higher production cost accelerates the effects of higher price sensitivity on lowering the optimal capacity and stocking policies in the supply chain. The effect of mean demand error on the optimal prices is relatively marginal compared with that from price sensitivity. We also found that increasing the standard deviation of the random demand does not necessarily increase the stocking level as one would predict. The results show that delivery uncertainty plays an important role in the inventory carried beyond the price break. We discuss potential extensions for future research.

Quantity Flexibility Contract in the Presence of Discount Incentive

We design a new contract, which we refer to as the QFi contract, that combines the quantity flexibility (QF) mechanism and the price-only discount incentive. Under the QF contract, the buyer does not assume full responsibility for the forecast, yet the supplier guarantees the availability of the forecasted quantity and extra buffer inventory. In contrast, the price-only discount contract places full inventory burden on the buyer. We show that the proposed QFi contract effectively balances the inventory risk for both the buyer and the supplier considering both the QF and discount mechanisms. We also show that the QFi contract is able to achieve supply chain coordination. More importantly, the QFi contracts coordinating price scheme does not require knowledge of demand distribution. We identify areas where the buyer and supplier may both benefit from implementing the QFi contract as opposed to the extant QF or price-only (wholesale) discount contractual decisions in a decentralized supply chain. We also specify the conditions under which supply chain coordination can be achieved in a win-win manner. We conclude with managerial implications and provide directions for future research.

Optimal pricing and inventory strategies with multiple price markdowns over time

We study a multiple period discount problem for products that undergo several price cuts over time. In the high-technology sector, electronic component suppliers are often able to offer pre-announced price cuts to buyers due to technological innovation that allows them to produce existing components at lower costs. In this context, suppliers are primarily concerned with the optimal pricing decisions for the components over their life spans in order to achieve the highest possible revenues. Accordingly, the buying firms (i.e., manufacturers or retailers) also need to identify the corresponding optimal retail prices and order quantity for the finished products that utilize the components for which discounts are offered frequently. In this research, we develop a multiple-period price discount model that addresses this issue. Extant research in the price discount literature focuses on supply chains’ pricing and inventory decisions in the presence of a single price discount. The proposed model, in contrast, offers a systematic decision tool for identifying the optimal strategies throughout a products life span. Our results show that a decentralized supply chain characterized by multi-period discounts over a products life typically achieves 75 percent supply chain efficiency. We undertake a series of numerical experiments based on the model and discuss their managerial implications.

Investigating the effects of lead-time uncertainties and safety stocks on logistical performance in a border-crossing JIT supply chain

Abstract We study a dual delivery risk problem that firms inside the free trade zones (FTZ) along the US-Mexico border (i.e., maquiladoras) often face in their daily operations. It is commonly observed that maquiladoras’ suppliers keep buffer inventories of components in a 3rd party logistics (3PL) warehouse on the US side of border. Maquiladoras will “call-off” the components when they are needed for production runs, often multiple times a day. Each call-off shipment is an international shipment that is involved with export/import procedures and is subject to customs inspection, which often causes delays. Such delivery uncertainty, combined with the 3PL replenishment uncertainty, makes just-in-time (JIT) operations a challenging task for maquiladoras. In this study, we examine how a firm’s logistical performance can be affected by multiple transportation risks and multi-locational buffer inventory strategies in a border-crossing JIT supply chain. Our results show that a firm’s service level is more affected by the border-crossing uncertainty, whereas a firm’s order lead-time performance is predominantly attributed to the 3PL replenishment risk.

The campaign and lot size scheduling problem: a modification of the Economic Lot Scheduling Problem for the pharmaceutical industry

This paper presents a model to minimise inventory and setup costs in a multi-product operation where production is organised in campaigns. A campaign is defined as a number of successive, equally sized lots of a same product. Major and minor sets are considered. The decision variables are the per product time between campaigns and number of lots per campaign. Two cases are presented: when the time between campaigns is common to all products, and when it is a multiple of a common period. Examples are presented which demonstrate the cost differences based on the assumption of time between campaigns.