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.     

The impacts of the full returns policy on a supply chain with information asymmetry

In contrast to the existing return policies literature assuming that information is symmetrical between the manufacturer and the retailer, we study the full returns policy’s impact on supply chains with information asymmetry. We first study the case that the base level of the demand follows a discrete distribution with two states. We find that the retailer benefits from the full returns policy in all circumstances, while the manufacturer and the supply chain are better off under some conditions. We then consider the situation in which the base level of the demand is a type of AR(1) process.     

The impact of sharing customer returns information in a supply chain with and without a buyback policy

In this paper, we examine a single period problem in a supply chain in which a Stackelberg manufacturer supplies a product to a retailer who faces customer returns and demand uncertainty. We show that the manufacturer incurs a significant profit loss with and without a buyback policy if it fails to account for customer returns in the wholesale price decision. Under the assumption that the retailer is better informed than the manufacturer on customer returns information, we show that without a buyback policy, the retailer prefers not to share if the manufacturer overestimates while it prefers to share customer returns information if the manufacturer underestimates this information. If the manufacturer offers a buyback policy, we have the opposite results. We also discuss incentives to share the customer returns information and some of the issues that are raised in sharing this information.     

Channel coordination using product returns for a supply chain with stochastic salvage capacity

We examine returns policy in a Newsboy framework. Unlike the prior literature, however, we assume that both supplier and retailer have limited and stochastic salvage capacities. We first analyze the case of integrated supply chain in which the agents’ decisions are fully coordinated for the joint profits. The result prescribes a partial returns policy, in which the retailer returns a part of the leftovers to the supplier and liquidates the remainder through its clearance sale. In a decentralized system, the supplier should motivate the retailer to duplicate the outcome of the integrated system in choosing order and returns quantities. We propose three coordination contracts, of which each uses two benefit transfer schemes as an incentive to the retailer, instead of using a single benefit scheme as in the prior literature. All three effectively coordinate the supply chain. The supplier, as a Stakelberg leader, chooses the most profitable one since each contract yields the different shares of the agents’ profits.     

Strategic information sharing in a supply chain

We consider a two-member supply chain that manufactures and sells newsboy-type products and comprises a downstream retailer and an upstream vendor. In this supply chain, the vendor is responsible for making stock-level decisions and holding the inventory, and the retailer is better informed about market demand. In each period, the retailer receives a signal about market demand before the actual demand is realized, and must decide whether to reveal the information to the vendor, at a cost, before the vendor starts production. We assume that any information that the retailer reveals is truthful. We model the situation as a Bayesian game, and find that, in equilibrium, whether the retailer reveals or withholds the information depends on two things—the cost of revealing the information and the nature of market demand signal that the retailer receives. If the cost of sharing the information is sufficiently large, then the retailer will withhold the information from the vendor regardless of the type of signal that is received. If the cost of sharing the information is small, then the retailer will reveal the information to the vendor if a high demand is signaled, but will withhold it from the vendor if a low demand is signaled. In general, reducing the cost of sharing information and increasing the profit margin of either the retailer or the vendor (or reducing the cost of the vendor or retailer) will facilitate information sharing.     

Designing contracts for a closed-loop supply chain under information asymmetry

This paper studies the problem of designing contracts in a closed-loop supply chain when the cost of collection effort is the retailer’s private information. We investigate four cases: two contracts (a two-part nonlinear contract and a collection effort requirement contract), each under complete information and asymmetric information. We derive the manufacturer’s optimal contracts for all four cases and analyze the impact of information on the equilibrium results of supply chain members.     

Pricing in a supply chain for auction bidding under information asymmetry

We examine a supply chain in which a manufacturer participates in a sealed-bid lowest price procurement auction through a distributor. This form of supply chain is common when a manufacturer is active in an overseas market without establishing a local subsidiary. To gain a strategic advantage in the division of profit, the manufacturer and distributor may intentionally conceal information about the underlying cost distribution of the competition. In this environment of information asymmetry, we determine the equilibrium mark-up, the ex-ante expected mark-up and expected profit of the manufacturer and the equilibrium bid of the distributor. In unilateral communication, we demonstrate the informed agent’s advantage resulting to higher mark-up. Under information sharing, we show that profit is equally shared among the supply chain partners and we explicitly derive the mark-up when the underlying cost distribution is uniform in [0, 1]. The model and findings are illustrated by a numerical example.     

Coordination mechanism for a deteriorating item in a two-level supply chain system

The subject of the coordination between the suppliers and the buyers in multi-echelon inventory-distribution systems has been studied by many researchers. This paper considers a supply chain including a manufacturer and several buyers and assumes that the inventory items deteriorate over time and its inventory level decreases. In order to determine the order policies, coordination over the supply chain is achieved by scheduling the buyers’ delivery days and their coordination with the manufacturer’s production cycle. A mathematical model is developed and analyzed. To test the efficiency of the proposed model, two other models with the supposition of lot-sizing policies with common order cycle and independent deciding are also developed. In comparison to the other two models, the numerical results show that the synchronizing model of production and delivery cycles works better and has less total cost. In addition, in order to encourage the buyers in cooperation, a model on profit sharing is proposed that equitably shares the total savings with all the parties.     

Coordinating a decentralized supply chain with customer returns and price-dependent stochastic demand using a buyback policy

We investigate a decentralized supply chain that consists of a manufacturer and a retailer where the retailer simultaneously determines the retail price and order quantity while experiencing customer returns and price dependent stochastic demand. We propose an agreement between the manufacturer and the retailer that includes two buyback prices, one for unsold inventory and a second for customer returns, and show that this type of easy-to-implement agreement can achieve perfect supply chain coordination and be a win-win for both manufacturer and retailer when a complementary profit-sharing agreement is included.     

Mean–variance analysis of a single supplier and retailer supply chain under a returns policy

In the literature, most of the supply chain coordinating policies target at improving the supply chain’s efficiency in terms of expected cost reduction or expected profit improvement. However, optimizing the expected performance alone cannot guarantee that the realized performance measure will fall within a small neighborhood of its expected value when the corresponding variance is high. Moreover, it ignores the risk aversion of supply chain members which may affect the achievability of channel coordination. As a result, we carry out in this paper a mean–variance (MV) analysis of supply chains under a returns policy. We first propose an MV formulation for a single supplier single retailer supply chain with a newsvendor type of product. The objective of each supply chain decision maker is to maximize the expected profit such that the standard deviation of profit is under the decision maker’s control. We study both the cases with centralized and decentralized supply chains. We illustrate how a returns policy can be applied for managing the supply chains to address the issues such as channel coordination and risk control. Extensive numerical studies are conducted and managerial findings are proposed.     

Endogenous information acquisition in supply chain management

In this paper, we analyze an endogenous determination of efforts put into information acquisition and its impact on supply chain management. More specifically, we consider a supplier who sells a product to a buyer during a single selling season. Prior to placing an order with the supplier, the buyer has an option to acquire additional information about the demand by hiring experts (who are capable of providing forecasts). Because a commission fee must be paid to each hired expert, there exists a tradeoff between the cost and the value of the information, and the buyer needs to determine how much information to acquire. We derive the optimal information-acquisition level in an integrated setting and compare it with that determined in a decentralized setting. We also analyze several types of supply contracts to examine if they can coordinate the supply chain and allow an arbitrary division of system profit between the supplier and the buyer.     

Scalable methodology for supply chain inventory coordination with private information

This paper considers the problems of coordinating serial and assembly inventory systems with private information where end-item demands are known over a finite horizon. In a private information environment, the objective function and cost parameters of each facility are regarded as private information that no other facilities in the system have access to. The solution approach decomposes the problem into separable subproblems such that the private information is partitioned as required. Global optimality is sought with an iterative procedure in which the subproblems negotiate the level of material flows between facilities. At the core of the solution procedure is a supplier–buyer link model that can be used as a building block to form other supply chain configurations. Experimental results show that the proposed methodology provides promising results when compared to competing methodologies that disregard information privacy.     

Pricing and horizontal information sharing in a supply chain with capacity constraint

This paper aims to explore manufacturers horizontal information sharing strategy under competition. The model framework is based on a two-echelon supply chain composed of one upstream supplier and two downstream manufacturers with asymmetric capacity constraint. Analysis of the model establishes manufacturers’ information sharing strategies under different conditions and shows how supplier’s pricing decision can shape manufacturers’ information sharing incentives.     

The use of advance demand information in a project-based supply chain

In a project environment, a manufacturer is confronted with two types of demand: regular demand from many small orders and very irregular, lumpy demand from infrequent, large orders. Manufacturers who build to stock must carry large safety stocks to meet the lumpy demand. As part of the project engineering process, however, project engineers and implementers (e.g. installers) typically have developed information about material requirements well in advance of placement of orders. We analyze the inventory reduction that could be achieved if the installer were to communicate advance demand information (ADI) to the manufacturer. We look at it in particular when the bid is placed. We focus on the following characteristics of available ADI in project environments: First, ADI information is uncertain, because decisions on installer and manufacturer selection have not yet been finalized. Second, information is detailed, available at the item level. We show that ADI is particularly valuable when potential demand for large projects is irregular and when proposals for potential projects have a high probability of leading to orders.     

The impact of partial information sharing in a two-echelon supply chain

We consider a simple two-echelon supply chain composed of a manufacturer and a retailer in which the demand process of the retailer is an AR(1) where the random component is a function of both sides’ information. We focus on partial information sharing under which each side informs the other of an interval in which the exact value of its own component of demand lies. These various levels of information sharing can reduce the supply chain costs.     

The value of information in a capacitated closed loop supply chain

We explore the value of information in the context of a firm that faces uncertainty with respect to demand, product returns, recovery yield, and capacity utilization. Capacity is finite and shared between new production and recovery operations. The operational decisions of interest are the quantity of new product to produce, the quantity of returns to recover, and the quantity of returns to dispose. Product recovery is uncertain in that each returned unit can be successfully recovered with a known probability, and otherwise it is discarded at a cost. Demand in a period is satisfied with new production, recovered returns, or a mix of both types.     

Wholesale-price contract of supply chain with information gathering

This paper investigates a wholesale-price contract of supply chain under the endogenous information structure. This supply chain consists of one supplier and one retailer during the selling season. The retailer does not know his selling cost but can spend resources to acquire information. The supplier offers a contract, which induces the retailer to gather information and generate more production orders with beta costs. We find that there exists an upper bound of the information gathering cost such that the supplier induces the retailer to gather information. The increasing cost of information gathering may decrease the order quantity and wholesale price. Moreover, the cost beta has an impact on the expected profits of the two parties. With the increasing cost of information gathering, the supplier’s expected profit is reduced, while that of the retailer becomes ambiguous in terms of the distribution function and the interval of selling cost information. Finally, a numerical example is presented to explain the main results.     

Impact of information errors on supply chain performance

This study investigates how information errors affect supply chain performance when a retailer and a supplier share the end-customer demand information. An Enterprise Resource Planning (ERP) system, often used to share information in a supply chain, is not perfect and often contains erroneous information. Companies contemplating the use of ERP systems must evaluate the benefit of using them despite the existence of errors in the system. Our study quantifies the impact of information errors by comparing the supplier costs with and without errors. Our analytical and computational results indicate that the detrimental impact of errors outweighs the beneficial impact of information sharing when the variance of information errors exceeds the variance of end-customer demands. Therefore, when that happens, it is best to operate as if the information is not available. Finally, if it is possible to expend effort and reduce information errors, we present an analytical model for determining the optimal level of investment.     

Effect of the price-dependent revenue-sharing mechanism in a decentralized supply chain

This paper deals with an emerging research problem of coordinating a vertically separated channel under a price-dependent revenue-sharing mechanism, which has been used in eBay’s marketplace over two decades. We develop analytic models with bearing the following questions in mind: can the channel conducted by such a mechanism operate effectively and efficiently? Can it outperform the prevalent wholesale-price-only arrangement or the price-independent revenue sharing practice? If not, does it persist in certain decision bias that leads to a lower profit and channel inefficiency? To investigate these questions, we model the decision-making of the two firms in the supply chain as a Stackelberg game and carry out equilibrium analysis. Our analysis shows that the price-dependent R-S model does not outperform the price-independent, and only performs better than the wholesale-price-only mechanism in certain conditions, e.g., a higher retail share of channel-wide cost and/or a lower price-sensitivity coefficient of R-S function. Our findings suggest that it may be unworthy of adopting such a more complicated, price-dependent mechanism from a channel coordination perspective.     

Supply contracting and process innovation in a dynamic supply chain with information asymmetry

We investigate the process innovation and contracting decisions of a dynamic supply chain consisting of a supplier and a manufacturer, with the manufacturer possessing private information about her efficiency of process innovation. To overcome the potential adverse selection problem due to the asymmetric information, the supplier designs a menu of supply contracts that stipulates both the wholesale price and the purchasing quantity. We find that under information asymmetry, the supplier will optimally set a higher wholesale price but a lower purchasing quantity for the manufacturer with high innovation efficiency than that for the manufacturer with low innovation efficiency. As a consequence, the manufacturer with high innovation efficiency will significantly underinvest in innovation due to information asymmetry in addition to the impact of the double marginalization effect. Moreover, although a longer contract period tends to better motivate innovation, it can also magnify the influences of adverse selection on supply chain contracting, leading to a higher wholesale price for the manufacturer with high innovation efficiency.