Coordinating a supply chain with demand information updating

Yang, Huijie; Peng, Jiawu

doi:10.3934/jimo.2020181

Cited by 7 publications

(9 citation statements)

References 44 publications

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“…They considered that the manufacturer uses an emergency production if the retailer’s order quantity is not satisfied. Yang and Peng (2022) identified a hybrid option-buyback contract for the coordination of a two-echelon supply chain with demand information updating. Patra and Jha (2022) developed two different models bidirectional option contract model and the wholesale price contract model for a two-level relief supply chain consisting of a humanitarian organization (HO) and a supplier.…”

Section: Literature Reviewmentioning

confidence: 99%

“…et al (2014) Luo and Chen (2015) Ahmadi et al (2016) Li et al (2016) Pal et al (2018) Lu et al (2017) Taleizadeh et al (2019) Nobil et al (2018) Luo et al (2018) Hsieh and Lai (2019) Heydari et al (2019) Zare et al (2019) Mohammadi et al (2020) Ghosh et al (2020) Xie et al (2020) Zaheri et al (2020) Zhou et al (2020) Mokhtari et al (2021) Chen and Liu (2021)Patra and Jha (2022)Yang and Peng (2022) …”

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Call option contract in a supply chain with random yield and random demand using downconversion approach

Zamani

Esmaeili

Zhang

2023

JM2

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Purpose This study aims to examine the value of the call option contract in hedging the risks in the supply chain. The decentralized supply chain without call option contract is first studied as the criterion model for evaluations. This paper addresses several questions: What will be the optimal manufacturer’s production quantity, retailer’s ordering and pricing policies in the presence of random demand and random yield by applying the downconversion approach? How will the call option contract influence the optimal decisions for the members of the supply chain? Can the risk from randomness be divided among the members in the supply chain through the call option contract? Design/methodology/approach This paper considers a two-level decentralized supply chain under random yield and random demand in which the manufacturer takes advantage of the downconversion approach with two scenarios, with and without option contract. To the best of the authors’ knowledge, no article or study uses the downconversion approach in a supply chain regarding random yield and random demand. Furthermore, the paper considers pricing with option contract in the supply chain, which makes this article stands out significantly from other articles in the literature. Findings This study shows that the downconversion approach would reduce the risk caused by the random yield, which appears to be the appropriate method for the environmental goal of the supply chains. Moreover, adopting a call option contract can increase flexibility and mitigate risks, resulting in more expected members’ profits. Research limitations/implications To simplify the model, the authors assume one manufacturer and one retailer, so extending the model to consider multiple retailers instead of one retailer and inventory sharing between them would be interesting. Considering the option and exercise prices as decision variables would be important future research topics. Put option and bidirectional option contracts could be investigated in the future. Another extension is modeling asymmetry of information in supply chain. Originality/value This paper provides managerial insights on dealing with both demand and yield risks in a manufacturer–retailer supply chain. The manufacturer has a random yield production and produces two types of vertical products: low-end and high-end. To reduce waste caused by the random yield, the manufacturer uses a downconversion approach in which low-end products are made by converting the defective high-end products. The manufacturer purchased a shortage of high-end products from the secondary market (i.e. emergency sourcing). High-end products are sold through the retailer, and low-end products are sold directly by the manufacturer. The customer demand for high-end products in the end market is random and depends on the selling price, and the customer demand for the low-end products in the secondary market is independent and random. The retailer contracts the manufacturer with the call option to obtain high-end products to meet a random demand; in fact, by using the call option contract, the authors try to balance the risks between two members. Two scenarios of with and without call option contract are proposed. After the high-end product demand is observed, the retailer would exercise the option order quantity in the call option contract scenario and then place an instant order with the manufacturer if necessary. In each scenario, the manufacturer and the retailer make their decisions simultaneously (static game) to determine the retailer’s optimal ordering and pricing policies and the optimal production quantity of the manufacturer (Nash equilibrium) by maximizing their expected profits. Finally, the impact of the model parameters on the supply chain is expressed through numerical examples. The numerical analysis shows that the call option contract provides greater profit than the wholesale price contract.

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Section: Literature Reviewmentioning

confidence: 99%

mentioning

confidence: 99%

Call option contract in a supply chain with random yield and random demand using downconversion approach

Zamani

Esmaeili

Zhang

2023

JM2

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“…Furthermore, in the second direction, demand information updates occur in the production season. The retailer can update the demand forecast by observing new market signals during the production season [3,8,15,[25][26][27][28][29][30][31][32][33][34][35][36][37][38]. For example, [31] studied the optimal ordering policy for a retailer who has two order instants before and after demand information updates with an uncertain cost.…”

Section: Production and Ordering Strategy With Demand Information Upd...mentioning

confidence: 99%

“…They proved the existence of optimal equilibrium solutions under both an advance order and regular order strategies. In [37], authors proposed an option buyback hybrid contract to achieve perfect coordination for a two-echelon supply chain under demand information updates. The authors of [33] addressed the optimal production and procurement planning in a random yield supply chain with perfect and imperfect demand information updating.…”

Section: Production and Ordering Strategy With Demand Information Upd...mentioning

confidence: 99%

Equilibrium Strategy of Production and Order in a Two-Echelon Supply Chain with Demand Information Updates and Capacity Restriction

Peng,

Zhao,

Dai

2023

Mathematics

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This paper studies production-and-order strategies under three production systems in which the supplier’s production quantity is constrained by the upfront preparations of capacity due to a long production season. The newsvendor-like retailer may make an advance order at the beginning of the production season, relying on early demand information, or a delay order at the end of the production season, depending on the updated demand information. In two special cases of perfect and imperfect demand information updates, this paper analytically derives the optimal decision equilibrium of a supplier-led Stackelberg game for three production-and-order strategies: (1) advance order under single regular production, (2) delay order under single emergency production and (3) delay order under two-mode production. In the case of perfect information updates, all three strategies likely become the equilibrium strategies that depend on the instant wholesale price and on the production cost for emergency production. In the case of imperfect information updates, the strategy of advance orders under regular production represents the unique equilibrium of the supply chain. Furthermore, the effect of general demand information updates on the equilibrium strategy is analyzed. Counterintuitively, the research results show that the retailer is more profitable with imperfect information updates than with perfect information updates when a high instant wholesale price is charged. In sharp contrast to previous studies, where the supplier always benefits from a two-mode production system due to its flexibility, our results indicate that the supplier would prefer a single regular production system when the production cost under emergency production is large, or the quality of demand information is high. Numerical examples verify our theoretical results.

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“…Some scholars considered the impact of product quality, transportation costs, delivery time, production capacity, service management, technology, and other factors to construct an evaluation index system for parts suppliers [15,16]. They applied multicriteria decision-making (MCDM), fuzzy TOPSIS approach, NSGA-II, etc., to develop a supplier decision-making system, and took the overall performance and profit of the manufacturing supply chain as constraints to help decision-makers choose the right suppliers quickly and effectively [17,18]. To ensure the overall profit of auto parts suppliers, Yang H and Peng J [19] took into account the production capacity of suppliers, and formulated a coordination method for the two-tier manufacturer-supplier supply chain to optimize product price and order quantity.…”

Section: Introductionmentioning

confidence: 99%

Process Quality Control Method for Three-Cylinder Engine Balance Shaft System Oriented to Manufacturing Supply Chain

Wang,

Li,

2023

Applied Sciences

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Automobile manufacturers often outsource key components and parts to suppliers, hence ensuring that process quality has been a hot topic in current research. The quality control demands at different stages of the manufacturing supply chain cycle have been ignored in traditional process quality control methods. To solve this issue, this paper takes the three-cylinder engine balance shaft system as the research object, and builds a process quality control model for the three-cylinder engine balance shaft system oriented to the manufacturing supply chain. The metagraph theory is introduced, and parts suppliers in the manufacturing supply chain, product process quality attributes, supply chain revenue function, and other key elements are defined. By constructing the revenue function of the three-cylinder engine balance shaft system process quality control model, the feasibility of the proposed method is verified by taking the process quality control of one certain three-cylinder engine balance shaft system as a verification example. The results show that, with other conditions unchanged, the application of this method can increase the overall profit of the manufacturing supply chain by 100% at the stage of preparation before product machining, and more than 8% at the stage of product performance evaluation. The proposed method of process quality control based on the metagraph theory provides a theoretical basis for building an information sharing platform of product process quality, and effectively reduces the machining cost for product improvement and upgrading in the manufacturing supply chain.

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Coordinating a supply chain with demand information updating

Cited by 7 publications

References 44 publications

Call option contract in a supply chain with random yield and random demand using downconversion approach

Call option contract in a supply chain with random yield and random demand using downconversion approach

Equilibrium Strategy of Production and Order in a Two-Echelon Supply Chain with Demand Information Updates and Capacity Restriction

Process Quality Control Method for Three-Cylinder Engine Balance Shaft System Oriented to Manufacturing Supply Chain

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