Abstract:We consider a decentralized assembly system in which a buyer purchases components from several first-tier suppliers. We examine the dynamics of suppliers' investments in cost-reduction initiatives over the life cycle of a product under different procurement approaches. We model the suppliers' investment decisions under cost-contingent contracts, with wholesale prices determined on the basis of the prevailing component costs, as a dynamic game in closed-loop strategies. We show that there always exists an equil… Show more
“…Here, u(t) describes the number of supplier development projects at time t; with capacity bound x [ 0 to reflect limited availability of resources in terms of time, manpower, or budget. Similar models of cost reduction through learning have been proposed by [4,11,20,27,56]. The costs of supplier development are integrated into the proposed model by a penalization term c SD uðtÞ, c SD !…”
Section: Basic Modelmentioning
confidence: 97%
“…This market condition is comparable with an oligopolistic or monopolistic market structure, in which a firm can increase market demand by lowering the sale price. Similar approaches to specify the price distribution curve have been proposed by [4,20,27].…”
Section: Model Descriptionmentioning
confidence: 98%
“…This assumption is not completely new: Honda Motor Company, e.g., first learns extensively about a suppliers cost structure and then specifies a target price that combines both the suppliers unit production cost and a percent margin [29]. Similar approaches to specify the supply costs have been proposed by [4,21,27]. Summing up, the supply chain profit is given by…”
We consider supplier development within a supply chain consisting of a single manufacturer and a single supplier. Because investments in supplier development are usually relationship-specific, safeguard mechanisms against the hazards of partner opportunism have to be installed. Here, formal contracts are considered as the primary measure to safeguard investments. However, formal contracts entail certain risks, e.g., a lack of flexibility, particular in an ambiguous environment. We propose a receding horizon control scheme to mitigate possible contractual drawbacks while significantly enhancing the supplier development process and, thus, to increase the overall supply chain profit. Our findings are validated by a numerical case study.
“…Here, u(t) describes the number of supplier development projects at time t; with capacity bound x [ 0 to reflect limited availability of resources in terms of time, manpower, or budget. Similar models of cost reduction through learning have been proposed by [4,11,20,27,56]. The costs of supplier development are integrated into the proposed model by a penalization term c SD uðtÞ, c SD !…”
Section: Basic Modelmentioning
confidence: 97%
“…This market condition is comparable with an oligopolistic or monopolistic market structure, in which a firm can increase market demand by lowering the sale price. Similar approaches to specify the price distribution curve have been proposed by [4,20,27].…”
Section: Model Descriptionmentioning
confidence: 98%
“…This assumption is not completely new: Honda Motor Company, e.g., first learns extensively about a suppliers cost structure and then specifies a target price that combines both the suppliers unit production cost and a percent margin [29]. Similar approaches to specify the supply costs have been proposed by [4,21,27]. Summing up, the supply chain profit is given by…”
We consider supplier development within a supply chain consisting of a single manufacturer and a single supplier. Because investments in supplier development are usually relationship-specific, safeguard mechanisms against the hazards of partner opportunism have to be installed. Here, formal contracts are considered as the primary measure to safeguard investments. However, formal contracts entail certain risks, e.g., a lack of flexibility, particular in an ambiguous environment. We propose a receding horizon control scheme to mitigate possible contractual drawbacks while significantly enhancing the supplier development process and, thus, to increase the overall supply chain profit. Our findings are validated by a numerical case study.
“…Lin (2001, 2003) study R&D investment in a one-to-many supply chain. Bernstein and Kök (2009) and Bernstein et al (2015) explore R&D investment in a many-to-one supply chain. Ishii (2004) and Gupta (2008) consider R&D investment in a many-to-many supply chain.…”
Abstract. In a decentralized supply chain with an upstream supplier and a downstream platform, the supplier sells a product to a stochastic isoelastic demand market through a platform. The supplier considers to make R&D investment to reduce its production cost, and hence the supply chain becomes more cost efficient. We first characterize the equilibrium pricing and production decisions for the two chain members, under any given R&D investment strategy. We then analyze the impact of the supplier's R&D investment on equilibrium decisions and corresponding profits of the two chain members. We find that the supplier's R&D investment can lead to a lower retail price and a higher production quantity, and always benefit the platform's profit.
“…[1,2] consider R&D investment in a one-to-many supply chain. [3,4] investigate R&D investment in a many-to-one supply chain. [7,9] explore R&D investment in a many-to-many supply chain.…”
Abstract-This paper considers a supply chain with an upstream supplier and a downstream manufacturer, who faces a quality and price sensitive market demand. The supplier makes R&D investment in the manufacturer, which can lead to an improvement in the manufacturer's product quality, and hence, improve the efficiency of the entire supply chain. First, we derive the optimal retail price for the manufacturer, under any given R&D investment strategy of the supplier. Then, we characterize the supplier's optimal R&D investment strategy. We show that both the supplier and the manufacturer can benefit from such an investment, under certain condition.
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