Impact of supply base heterogeneity in electronic markets

Internet based marketplaces have enabled industrial buyers to locate suppliers from geographically diverse locations. This has resulted in increased variations in certain supplier parameters such as capacity and cost among the participating suppliers. However, the impact of this increased heterogeneity on the procurement practices are not well understood. In this paper we consider three supplier parameters that can affect the price the buyer pays and the number of suppliers that the buyer will select for award of contract. These attributes are capacity, production cost and demand for supplier’s capacity. We show how these parameters impact the price that a supplier quotes. We also show how the buyer will determine the optimum number of suppliers using a reverse auction mechanism when he does not have perfect knowledge of the suppliers’ parameters. Our model suggests that buyers need to adjust some of the input parameters while procuring capacity from a heterogeneous supply base. For instance, buyers need to pre-qualify more suppliers if the supply base has greater heterogeneity.     

Sourcing decisions with capacity reservation contracts

By committing to long-term supply contracts, buyers seek to lower their purchasing costs, and have products delivered without interruption. When a long-term contract is available, suppliers are less pressured to find new customers, and can afford to charge a price lower than the prevailing spot market price. We examine sourcing decisions of a firm in the presence of a capacity reservation contract that this firm makes with its long-term supplier in addition to the spot market alternative. This contract entails delivery of any desired portion of a reserved fixed capacity in exchange for a guaranteed payment by the buyer. We investigate rational actions of the two parties under two different types of periodic review inventory control policies used by the buyer: the two-number policy, and the base stock policy. When typical demand probability distributions are considered, inclusion of the spot market source in the buyer’s procurement plan significantly reduces the capacity commitments from the long-term supplier.     

Analyzing online B2B exchange markets: Asymmetric cost and incomplete information

This research applies the discriminating auction to analyze the online B2B exchange market in which a single buyer requests multiple items and several suppliers having equal capacity and asymmetric cost submit bids to compete for buyer demand. In the present model, we examine the impact of asymmetric cost and incomplete information on the participants in the market. Given the complete cost information, each supplier randomizes its price and the lower bound of the price range is determined by the highest marginal cost. In addition, the supplier with a lower marginal cost has a larger considered pricing space but ultimately has a smaller equilibrium one than others with higher marginal costs. When each supplier’s marginal cost is private information, the lowest possible price is determined by the number of suppliers and the buyer’s reservation price. Comparing these two market settings, we find whether IT is beneficial to buyers or suppliers depends on the scale of the bid process and the highest marginal cost. When the number of suppliers and the difference between the highest marginal cost and the buyer’s reservation price are sufficiently large, each supplier can gain a higher profit if the marginal costs are private information. On the contrary, when the highest marginal cost approaches the buyer’s reservation price, complete cost information benefits the suppliers.     

A mathematical model for a capacity reservation contract

It is common practice in many industries to use a replenishment contract with a mechanism of capacity reservation. In this paper, we focus on a multi-period capacity reservation contract practiced between a buyer, who buys a single type of product and sells it to end-customers, and two or more heterogeneous suppliers, who produce and replenish the product as agreed upon contractually.In this paper, a mathematical model including several key features of a real contract is developed for a single supplier situation from the buyer’s perspective. It is then extended to a multiple supplier model for a system in which there are several heterogeneous suppliers with different capacities and prices. A rolling-horizon implementation strategy is suggested for the efficient application of the models. Extensive computational experiments demonstrate that the model and strategy can produce cost effective contractual terms for the buyer within a few seconds.     

Suppliers’ competition and manufacturer’s product mix: the role of ingredient brand

This paper proposes a pricing game among a manufacturer and two competing suppliers. One of the suppliers establishes an ingredient brand, which can enhance the valuations of the end products. The equilibrium is derived to investigate the impact of the ingredient brand awareness and the production costs on the suppliers’ pricing competition, the manufacturer’s product mix and retail price(s), and profits. The result shows that the manufacturer may provide unique product or differentiated products, depending on the effectiveness of ingredient branding strategy. We distinguish two different monopolistic scenarios in supplier market and provide the condition for each supplier to survive. We find that the ingredient branding strategy mitigates the pricing competition between suppliers and benefits the manufacturer in a low production cost industry.     

A procurement model using capacity reservation

In this paper we model a scenario where a buyer reserves capacity from one or more suppliers in the presence of demand uncertainty. We explicitly derive suppliers’ capacity reservation price, which is a function of their capacity, amount of capacity reserved by the buyer and other parameters. The buyer operates in a “built-to-order” environment and needs to decide how much capacity to reserve and from how many suppliers. For a strategy of equal allocation of capacity among the selected suppliers we develop closed form solutions and show that the model is robust to the number of suppliers from whom capacity is procured through reservation. When the parameters of demand distribution changes the supply base is likely to remain more or less the same. Our analysis further shows that increasing the number of pre-qualified suppliers does not provide significant advantages to the buyer. On the other hand, a pre-qualified supply base with greater capacity heterogeneity will benefit the buyer.     

Heuristics for sourcing from multiple suppliers with alternative quantity discounts

In this paper, we analyze the impact of supplier pricing schemes and supplier capacity limitations on the optimal sourcing policy for a single firm. We consider the situation where the total quantity to be procured for a single period is known by the firm and communicated to the supplier set. In response to this communication, each supplier quotes a price and a capacity limit in terms of a maximum quantity that can be supplied to the buyer. Based on this information, the buyer makes a quantity allocation decision among the suppliers and corresponding to this decision is the choice of a subset of suppliers who will receive an order. Based on industry observations, a variety of supplier pricing schemes from the constituent group of suppliers are analyzed, including linear discounts, incremental units discounts, and all units discounts. Given the complexity of the optimization problem for certain types of pricing schemes, heuristic solution methodologies are developed to identify a quantity allocation decision for the firm. Through an extensive computational comparison, we find that these heuristics generate near-optimal solutions very quickly. Data from a major office products retailer is used to illustrate the resulting sourcing strategies given different pricing schemes and capacity limitations of suppliers in this industry. We find for the case of capacity constrained suppliers, the optimal quantity allocations for two complex pricing schemes (linear discount, and incremental units discount) are such that at most one selected supplier will receive an order quantity that is less than its capacity.     

A deterministic,multi-item inventory model with supplier selection and imperfect quality

This paper considers the scenario of supply chain with multiple products and multiple suppliers, all of which have limited capacity. We assume that received items from suppliers are not of perfect quality. Items of imperfect quality, not necessarily defective, could be used in another inventory situation. Imperfect items are sold as a single batch, prior to receiving the next shipment, at a discounted price. The demand over a finite planning horizon is known, and an optimal procurement strategy for this multi-period horizon is to be determined. Each of products can be sourced from a set of approved suppliers, a supplier-dependent transaction cost applies for each period in which an order is placed on a supplier. A product-dependent holding cost per period applies for each product in the inventory that is carried across a period in the planning horizon. Also a maximum storage space for the buyer in each period is considered. The decision maker, the buyer, needs to decide what products to order, in what quantities, with which suppliers, and in which periods. Finally, a genetic algorithm (GA) is used to solve the model.     

The effect of supplier capacity on the supply chain profit

In this paper, we study the role of capacity on the efficiency of a two-tier supply chain with two suppliers (leaders, first tier) and one retailer (follower, second tier). The suppliers compete via pricing (Bertrand competition) and, as one would expect in practice, are faced with production capacity. We consider a model with differentiated substitutable products where the suppliers are symmetric differing only by their production capacity. We characterize the prices, production amounts and profits in three cases: (1) the suppliers compete in a decentralized Nash equilibrium game, (2) the suppliers “cooperate” to optimize the total suppliers’ profit, and (3) the two tiers of the supply chain are centrally coordinated. We show that in a decentralized setting, the supplier with a lower capacity may benefit from restricting her capacity even when additional capacity is available at no cost. We also show that the loss of total profit due to decentralization cannot exceed 25 % of the centralized chain profits. Nevertheless, the loss of total profit is not a monotonic function of the “degree of asymmetry” of the suppliers’ capacities. Furthermore, we provide an upper bound on the supplier profit loss at equilibrium (compared with the cooperation setting) that depends on the “market power” of the suppliers as well as their market size. We show that there is less supplier profit loss as the asymmetry (in terms of their capacities) increases between the two suppliers. The worst case arises when the two suppliers are completely symmetric.     

Sourcing under incomplete information and negative capacity-cost correlation

We study a sourcing problem where a buyer reserves capacity from a set of suppliers. The suppliers have finite capacity and their unit production cost is a decreasing function of their capacity, implying scale economies. The capacity of each supplier and therefore the cost is his private information. The buyer and other suppliers only know the probability distribution of the supplier’s capacity. The buyer’s demand is random and she has to decide how much capacity to reserve in advance from a subset of suppliers and how much to source from marketplace. In this study we determine the buyer’s optimum reservation quantity and the size of the supply base. We find the presence of such capacity cost correlation leads to supply base reduction.     

供应中断风险下采购与定价决策分析

供应中断是供应链上的企业可能面临的问题,运用合理的采购策略可以帮助企业有效缓解供应中断风险。本文研究了供应中断下供应商和制造商之间的纵向竞争和两个制造商之间的横向竞争问题。供应商制定批发价,两个制造商采用不同的采购策略进行产量博弈,其中一个制造商采用紧急双源订货策略,另一个采用可靠单源订货策略。论文采用了多阶段博弈模型,分析了制造商之间的合谋与竞争两种行为,求出了供应商和制造商的最优决策,比较了这两种行为对供应商和制造商的影响。通过数值分析,讨论了成本参数和可靠性参数对于最优订货量的影响以及对于采用不同订货策略的制造商期望利润的影响。     

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.     

Competitive strategies and market segmentation for suppliers with substitutable products

This research studies the competition between two coexisting suppliers in a two-echelon supply chain. The suppliers have different inventory cost structures (holding cost and setup cost). Each supplier offers one type of the two substitutable products to multiple buyers. Buyers’ preferences between the substitutable products differ. Each buyer has a particular order profile (order frequency and quantity). A buyer chooses between the suppliers based on the prices offered by both suppliers and his/her own preference. A Hotelling-type model is used to describe buyers’ preferences for the products. We are able to describe the conditions for buyers to switch between the suppliers, and therefore spot the buyer groups that may or may not switch when the suppliers compete. Pricing strategies for different buyer groups are suggested to the competitive suppliers accordingly. Furthermore, equilibrium prices, market segments, and overall profits for the suppliers are revealed based on Game Theory. An algorithm is also proposed to forecast buyers’ reactions to suppliers’ pricing strategies given the buyers’ order profiles and preferences between the substitutable products.     

Impact of product pricing and timing of investment decisions on supply chain co-opetition

In supply chain co-opetition, firms simultaneously compete and co-operate in order to maximize their profits. We consider the nature of co-opetition between two firms: The product supplier invests in the technology to improve quality, and the purchasing firm (buyer) invests in selling effort to develop the market for the product before uncertainty in demand is resolved. We consider three different decision making structures and discuss the optimal configuration from each firm’s perspective. In case 1, the supplier invests in product quality and sets the wholesale price for the product. The buyer then exerts selling effort to develop the market and following demand potential realization, sets the resale price. In case 2, the supplier invests in product quality followed by the buyer’s investment in selling effort. Then, after demand potential is observed, the supplier sets the wholesale price and the buyer sets the resale price. Finally, in case 3, both firms simultaneously invest in product quality and selling effort, respectively. Subsequently, observing the demand potential, the supplier sets the wholesale price and the buyer sets the resale price. We compare all configuration options from both the perspective of the supplier and the buyer, and show that the level of investment by the firms depends on the nature of competition between them and the level of uncertainty in demand. Our analysis reveals that although configuration 1 results in the highest profits for the integrated channel, there is no clear dominating preference on system configuration from the perspective of both parties. The incentives of the co-opetition partners and the investment levels are mainly governed by the cost structure and the level of uncertainty in demand. We examine and discuss the relation between system parameters and the incentives in desiging the supply contract structure.     

A scenario-based stochastic model for supplier selection in global context with multiple buyers,currency fluctuation uncertainties,and price discounts

Suppliers network in the global context under price discounts and uncertain fluctuations of currency exchange rates have become critical in today’s world economy. We study the problem of suppliers’ selection in the presence of uncertain fluctuations of currency exchange rates and price discounts. We specifically consider a buyer with multiple sites sourcing a product from heterogeneous suppliers and address both the supplier selection and purchased quantity decision. Suppliers are located worldwide and pricing is offered in suppliers’ local currencies. Exchange rates from the local currencies of suppliers to the standard currency of the buyer are subject to uncertain fluctuations overtime. In addition, suppliers offer discounts as a function of the total quantity bought by the different customer’ sites over the time horizon irrespective of the quantity purchased by each site.     

供应商掺假行为的博弈分析与机制选择

供应商掺假行为会影响产品最终的质量与安全。本文研究由一个供应商和一个买方组成的分散式供应链,建立以买方为领导者的Stackelberg博弈模型,比较研究延期付款机制、检查机制与溯源机制对供应商掺假行为的影响。研究表明,检查机制与溯源机制无法完全阻止供应商的掺假行为,而延期付款机制可以实现对供应商掺假行为的完全遏制,其中生产掺假产品与非掺假产品的成本差是影响三种机制效率的重要因素。此外,增加买方产品责任成本可以有效降低供应商的掺假意愿,而供应商与买方的融资利率差会增加为防止供应商掺假行为的供应链成本,通过降低检查成本与溯源成本可以促使买方更好地遏制供应商的掺假行为。最后给出算例验证了上述结论,并进一步分析了各机制中不同参数对最优决策和利润的影响。     

Modeling a stochastic multi-objective supplier quota allocation problem with price-dependent ordering

One of the interesting subjects in supply chain management is supply management, which generally relates to the activities regarding suppliers such as empowerment, evaluation, partnerships and so on. A major objective of supplier evaluation involves buyers determining the optimal quota allocated to each supplier when placing an order. In this paper, we propose a multi-objective model in which purchasing cost, rejected units, and late delivered units are minimized, while the obtained total score from the supplier evaluation process is maximized. We assume that the buyer obtains multiple products from a number of predetermined suppliers. The buyer faces a stochastic demand with a probability distribution of Poisson regarding each product type. A major assumption is that the supplier prices are linearly dependent on the order size of each product. Since demand is stochastic, the buyer may incur holding and stockout costs in addition to the regular purchasing cost. We use the well-known L-1 metric method to solve the supplier evaluation problem by utilizing two meta-heuristic algorithms to solve the corresponding mathematical problems.     

Bid Evaluation in Procurement Auctions with Piecewise Linear Supply Curves

Consider a marketplace operated by a buyer who wishes to procure large quantities of several heterogeneous products. Suppliers submit price curves for each of the commodities indicating the price charged as a function of the supplied quantity. The total amount paid to a supplier is the sum of the prices charged for the individual commodities. It is assumed that the submitted supply curves are piecewise linear as they often are in practice. The bid evaluation problem faced by the procurer is to determine how much of each commodity to buy from each of the suppliers so as to minimize the total purchase price. In addition to meeting the demand, the buyer may impose additional business requirements that restrict which contracts suppliers may be awarded. These requirements may result in interdependencies between the commodities which lead to suboptimal results if the commodities are traded in independent auctions rather than simultaneously. Even without the additional business constraints the bid evaluation problem is NP-hard. The main contribution of our study is a flexible column generation based heuristics that provides near-optimal solutions to the procurer’s bid evaluation problem. Our method scales very well due to the Branch-and-Price technology it is built on. We employ sophisticated rounding and local improvement heuristics to obtain quality solutions. We also developed a test data generator that produces realistic problems and allows control over the difficulty level of the problems using parameters.     

Configurable offers and winner determination in multi-attribute auctions

The theory of procurement auctions traditionally assumes that the offered quantity and quality is fixed prior to source selection. Multi-attribute reverse auctions allow negotiation over price and qualitative attributes such as color, weight, or delivery time. They promise higher market efficiency through a more effective information exchange of buyer’s preferences and supplier’s offerings. This paper focuses on a number of winner determination problems in multi-attribute auctions. Previous work assumes that multi-attribute bids are described as attribute value pairs and that the entire demand is purchased from a single supplier. Our contribution is twofold: First, we will analyze the winner determination problem in case of multiple sourcing. Second, we will extend the concept of multi-attribute auctions to allow for configurable offers. Configurable offers enable suppliers to specify multiple values and price markups for each attribute. In addition, suppliers can define configuration and discount rules in form of propositional logic statements. These extensions provide suppliers with more flexibility in the specification of their bids and allow for an efficient information exchange among market participants. We will present MIP formulations for the resulting allocation problems and an implementation.     

Game theoretic analysis of the bargaining process over a long-term replenishment contract

This paper presents supplier–buyer models to describe the bargaining process between a supplier and a buyer over a long-term replenishment contract. Two different models are developed: one for the situation where the supplier has superior bargaining power over the buyer, and the other for the reverse situation. For each model, a method is derived that employs game theory-based analysis to determine the best strategy for each agent. A computational experiment is conducted to estimate the efficiency of the methods and to determine the economic implications of the results. The result indicates that each algorithm is very efficient compared to other strategies. We also verify that the solutions derived from each model are Nash equilibrium. Significantly improved outcomes are obtained for both agents by agreeing to the terms generated by the algorithms over the terms selected in the usual manner.