Achieving sharp deliveries in supply chains through variance pool allocation

Variability reduction and business process synchronization are acknowledged as key to achieving sharp and timely deliveries in supply chain networks. In this paper, we develop an approach that facilitates variability reduction and business process synchronization for supply chains in a cost effective way. The approach developed is founded on an analogy between mechanical design tolerancing and supply chain lead time compression. We first present a motivating example to describe this analogy. Next, we define, using process capability indices, a new index of delivery performance called delivery sharpness which, when used with the classical performance index delivery probability, measures the accuracy as well as the precision with which products are delivered to the customers. Following this, we solve the following specific problem: how do we compute the allowable variability in lead time for individual stages of the supply chain so that specified levels of delivery sharpness and delivery probability are achieved in a cost-effective way? We call this the variance pool allocation (VPA) problem. We suggest an efficient heuristic approach for solving the VPA problem and also show that a variety of important supply chain design problems can be posed as instances of the VPA problem. One such problem, which is addressed in this paper, is the supply chain partner selection problem. We formulate and solve the VPA problem for a plastics industry supply chain and demonstrate how the solution can be used to choose the best mix of supply chain partners.     

Social responsibility allocation in two-echelon supply chains: Insights from wholesale price contracts

Corporate social responsibility (CSR) is considered in a two-echelon supply chain consisting of an upstream supplier and a downstream firm that are bound by a wholesale price contract. CSR performance (the outcome of CSR conduct) of the whole supply chain is gauged by a global variable and the associated cost of achieving this CSR performance is only incurred by the supplier with an expectation of being shared with the downstream firm via the wholesale price contract. As such, the key issue is to determine who should be allocated as the responsibility holder with the right of offering the contract and how this right should be appropriately restricted. Game-theoretical analyses are carried out on six games, resulting from different interaction schemes between the supplier and the firm, to derive their corresponding equilibriums. Comparative institutional analyses are then conducted to determine the optimal social responsibility allocation based on both economic and CSR performance criteria. Main results are furnished in a series of propositions and their implications to the real-world business practice are discussed. The key findings are threefold: under the current model settings: (1) the optimal allocation scheme is to assign the supplier as the responsibility holder with appropriate restrictions on the corresponding rights to determine the wholesale price; (2) inherent conflict exists between the economic and CSR performance criteria and, hence, the two maxima cannot be achieved simultaneously; and (3) although integrative channel profit is not attainable, the system-wide profit will be improved by implementing optimal social responsibility allocation schemes.     

Logrolling and budget allocation games

In this paper we approach the concept of logrolling by examining a voting system where choices are made among sets of competing projects as a game in characteristic function form. We translate the question: “Will there be prices for votes on different projects which clear the market?” into a different, but equivalent question: “Is the formal game we have described amarket game?” We show that in general the answer is no, unless all voters have virtually the same preferences.     

Bundling decisions in supply chains

Firms often sell products in bundles to extract consumer surplus. While most bundling decisions studied in the literature are geared to integrated firms, we examine a decentralized supply chain where the suppliers retain decision rights. Using a generic distribution of customers’ reservation price we establish equilibrium solutions for three different bundling scenarios in a supply chain, and generate interesting insights for distributions with specific forms. We find that (i) in supply chain bundling the retailer’s margin equals the margin of each independent supplier, and it equals the combined margin when the suppliers are in a coalition, (ii) when the suppliers form a coalition to bundle their products the bundling gain in the supply chain is higher and retail price is lower than when the retailer bundles the products, (iii) the supply chain has more to gain from bundling relative to an integrated firm, (iv) the first-best supply chain bundling remains viable over a larger set of parameter values than those in the case of the integrated firm, (v) supplier led bundling is preferable to separate sales over a wider range of parameter values than if the retailer led the bundling, and (vi) if the reservation prices are uniformly distributed bundling can be profitable when the variable costs are low and valuations of the products are not significantly different from one another. For normally distributed reservation prices, we show that the bundling set is larger and the bundling gain is higher than that for a uniform distribution.     

Cooperative games and cost allocation problems

The objective of this paper is to provide a general view of the literature of applications of transferable utility cooperative games to cost allocation problems. This literature is so large that we concentrate on some relevant contributions in three specific areas: transportation, natural resources and power industry. We stress those applications dealing with costs and with problems arisen outside the academic world.     

Cost allocation games with information costs

We propose a simple model which embeds cost allocation games into a richer structure to take into account that information on costs can be itself costly. The model is an outgrowth of experience on cost allocation for consortia of municipalities dealing with garbage collection.The authors thank an anonymous referee for having pointed out a mistake in the previous version of Lemma 1     

Resource allocation games: a compromise stable extension of bankruptcy games

This paper presents an extension of the traditional bankruptcy problem. In a resource allocation problem there is a common-pool resource, which needs to be divided among agents. Each agent is characterized by a claim on this pool and an individual linear monetary reward function for assigned resources. Analyzing these problems a new class of transferable utility games is introduced, called resource allocation games. These games are based on the bankruptcy model, as introduced by O’Neill (Math Soc Sci 2:345–371, 1982). It is shown that the properties of totally balancedness and compromise stability can be extended to resource allocation games, although the property of convexity is not maintained in general. Moreover, an explicit expression for the nucleolus of these games is provided.     

Profit oriented supply chain network optimization

This paper proposes a novel mixed integer linear programming model to solve a supply chain network design problem. The proposed model deals with major issues for supply chains; product quality and cost. These issues are usually solved separately, but in this paper, we investigate effects of product quality on supply chain design and transportation flow. A trade-off between raw material quality, its purchasing and reprocessing costs was considered. Assuming decision maker (DM) wishes to work with a supplier which serves a low quality raw material; this raw material should be in need of reprocessing. To avoid the reprocessing costs, a supplier which serves a high quality raw material should be chosen but at this time the DM has to face a high purchasing cost. A supply chain network which consists of multiple suppliers, manufacturers, distribution centers and retailers is tried to be designed to accomplish aforementioned above trade-offs. The paper examines and discusses the relationship between product quality and supply chain design and offers several managerial insights.     

Managing raw material in supply chains

In this paper, we explore how firms can manage their raw material sourcing better by developing appropriate sourcing relationships with their raw material suppliers. We detail three empirical case studies of firms explaining their different raw material sourcing strategies: (a) firms can adopt a hands-off approach to raw material management, (b) firms can supply raw material directly to their suppliers, and this may be beneficial for some agents in the supply chain, and (c) firms can bring their component suppliers together, and the resulting cooperation between suppliers can be beneficial for supply chain. We then analytically model the three raw material scenarios encountered in our empirical work, examine the resulting profits along the supply chain, and extend the results to a competitive buyer scenario. Overall, our results show that active management of raw material sourcing can add value to supply chains.     

Correction to: Equilibrium computation in resource allocation games

Mathematical Programming - This note contains a correction of Theorems 1 and 2 and the subroutine $$textsc {Restore}$$ of the article Harks, T., Timmermans, V. Equilibrium computation in resource...     

Weighted allocation rules for standard fixed tree games

In this paper we consider standard fixed tree games, for which each vertex unequal to the root is inhabited by exactly one player. We present two weighted allocation rules, the weighted down-home allocation and the weighted neighbour-home allocation, both inspired by the painting story in Maschler et al. (1995) . We show, in a constructive way, that the core equals both the set of weighted down-home allocations and the set of weighted neighbour allocations. Since every weighted down-home allocation specifies a weighted Shapley value (Kalai and Samet (1988)) in a natural way, and vice versa, our results provide an alternative proof of the fact that the core of a standard fixed tree game equals the set of weighted Shapley values. The class of weighted neighbour allocations is a generalization of the nucleolus, in the sense that the latter is in this class as the special member where players have all equal weights.     

Preferences for contractual forms in supply chains

The supply chain contracting literature has focused on incentive contracts designed to align supply chain members’ individual interests. A key finding of this literature is that members’ preferences for contractual forms are often at odds: the upstream supplier prefers relatively complex contracts that can coordinate the supply chain; however, the downstream retailer prefers a wholesale price-only contract because it leaves more surplus (than does a coordinating contract), which the retailer can capture. This paper addresses the following question: Under what circumstances do suppliers and retailers prefer the same contractual form? We study supply chain members’ preferences for contractual forms under three different competitive settings in which multiple supply chains compete to sell substitutable products in the same market. Our analysis suggests that both upstream and downstream sides of the supply chain may prefer the same “quantity discount” contract, which would eliminate the conflicts of interest that otherwise typify contracting situations. More interesting still is that both sides may also prefer the wholesale price-only contract; this finding provides a theoretical explanation for why that inefficient (but simple) contract is widely adopted in supply chain transactions.     

Bargaining in competing supply chains with uncertainty

Substantial literature has been devoted to supply chain coordination. The majority of this literature ignores competition between supply chains. Moreover, a significant part of this literature focuses on coordination that induce the supply chain members to follow strategies that produce the equilibria chosen by a vertically integrated supply chain. This paper investigates the equilibrium behavior of two competing supply chains in the presence of demand uncertainty. We consider joint pricing and quantity decisions and competition under three possible supply chain strategies: Vertical Integration (VI), Manufacturer’s Stackelberg (MS), and Bargaining on the Wholesale price (BW(α), α is the bargaining parameter) over a single or infinitely many periods. We show that, in contrast to earlier literature, using VIVI (VI in both chains) is the unique Nash Equilibrium over one period decision, while using MSMS or BW(α)BW(α) may be Nash Equilibrium over infinitely many periods.     

Coordination of dynamic lot-sizing in supply chains

This paper presents a new scheme for the coordination of dynamic, uncapacitated lot-sizing problems in two-party supply chains where parties’ local data are private information and no external or central entity is involved. This coordination scheme includes the following actions: At first, the buyer generates a series of different supply proposals using an extension of her local lot-sizing problem. Then the supplier calculates his cost changes that would result from the implementation of the buyer’s proposals. Based on these information, parties can identify the best proposal generated. The scheme identifies the system-wide optimum in different settings—for instance in a two-stage supply chain where the supplier’s costs for holding a period’s demand in inventory exceed his setup costs.     

Order-Up-To policies in Information Exchange supply chains

Collaboration in Supply Chains (SC) is concerned with the alignment of the decision making process amongst SC partners. This is crucial in the planning and inventory management area where this alignment is enabled by the exchange of information. Several benefits deriving from such effective collaboration exist, such as: excess inventory elimination, lead times reduction, improved customer service, efficient product development, etc. Operations Management literature proclaims the virtues of collaboration and information sharing but academicians and practitioners have recently identified various gaps that still need further work. More specifically it has been shown that several deleterious phenomena as the bullwhip effect; inventory instability and intermittent orders are not completely eliminated in Information Exchange supply chains. The reason is mainly because companies adopt order policies that are prone to create instability along the SC. In this paper we show how the performance of an Information Exchange SC can be improved by shifting from a myopic periodic review Order-Up-To policy to a periodic review Order-Up-To with feedback gain. To do so, we model the SC structure through difference equations and study the system response in term of internal process efficiency and customer service level.