Inventory and pricing decisions in a single-period problem involving risky supply

Serel, Doğan A.

doi:10.1016/j.ijpe.2008.07.012

Cited by 71 publications

(18 citation statements)

References 40 publications

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“…One of the suppliers is perfectly reliable but expensive; the other is unreliable but cheaper. This setting has been frequently used in existing literature (Tomlin 2006;Babich, Ritchken, and Burnetas 2007;Serel 2008;Li, Wang, and Cheng 2010;Gurnani et al 2012;Chen and Guo 2014;Gupta et al 2015). Suppose that supplier 1 is perfectly reliable and supplier 2 has some probability of disruption.…”

Section: Modelmentioning

confidence: 99%

Managing supply disruption through procurement strategy and price competition

Huang

Yuan

2015

International Journal of Production Research

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When facing supply disruptions, the emergency procurement strategy and the optimal allocation procurement strategy are widely used strategies to manage supply risks. In this paper, buyers use these types of procurement strategies under the threat of supply disruption and engage in price competition. The structural properties of the procurement strategies are characterised by their reliability thresholds. We find that reliability thresholds play a critical role in buyer procurement strategy choices, which are related to the sales price, underage cost and differentials in unit procurement cost. A solution procedure is proposed to determine the equilibrium strategy profile. The effects of reliability levels and costs on the equilibrium prices, expected profits and equilibrium strategy profiles are explored. We extend the basic model to investigate the case of symmetric competition where buyers can freely choose their procurement strategy. The results show that in most cases, the competing buyers will choose the same strategy, whether an optimal allocation strategy with single sourcing or an emergency procurement strategy with dual sourcing. In a special parameter setting, the buyers will choose either strategy because they yield identical expected profits; this leads to multiple equilibria. We also find the equilibrium to be Pareto efficient.

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Section: Modelmentioning

confidence: 99%

Managing supply disruption through procurement strategy and price competition

Huang

Yuan

2015

International Journal of Production Research

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“…Recently, there is increasing interest in this research area, as rms need to e ectively manage supply uncertainty in today's complex global supply chains; see, for instance, the recent works of Tomlin (2006), Dada et al (2007), Serel (2008, Burke et al (2009), Federgruen and Yang (2009), Tang et al (2014), and Xu and Lu (2013. However, none of the above papers consider component procurement strategies under an assembly structure.…”

Section: Literature Reviewmentioning

confidence: 99%

Component procurement strategies in decentralized assembly systems under supply uncertainty

Pan

2015

IIE Transactions

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In this article we analyze the interactions among the assembler and two component suppliers in their procurement decisions under a Vendor-Managed Inventory (VMI) contract. Under the VMI contract, the assembler rst o ers a unit price for each component and will pay component suppliers only for the amounts used to meet the actual demand. The two independent component suppliers then decide on the production quantities of their individual components before the actual demand is realized. We assume that one of the component suppliers has uncertainty in the supply process, in which the actual number of components available for assembly is equal to a random fraction of the production quantity. Under the assembly structure, both component suppliers need to take into account the underlying supply uncertainty in deciding their individual production quantities, as both components are required for the assembly of the nal product. We rst analyze the special case under deterministic demand and then extend our analysis to the general case under stochastic demand. We derive the optimal component prices o ered by the assembler and the corresponding equilibrium production quantities of the component suppliers. . IntroductionSourcing components from a complex global supplier network can lead to a high degree of uncertainty in the supply process. Various supply chain glitches such as unexpected supply disruptions, insu cient supplier capacity, or transportation delays across borders can cause unexpected shortfalls in the required components and halt the assembly of the nal products. At the same time, long procurement lead times in a global supply network make it di cult and expensive to deal with such component shortfalls using emergency orders. Consequently, rms need to e ectively manage supply uncertainty in their component procurement decisions to avoid such potential component shortfalls. This is especially critical for products with rapidly changing technology or short life cycle such as electronic products, as it is expensive to keep safety stock of components due to high obsolescence costs.In this article we analyze the interactions among the assembler and component suppliers in their procurement decisions under a Vendor-Managed Inventory (VMI) contract. Specifically, we assume that the assembler needs to procure two required components from two independent suppliers to assemble the nal product. Under the VMI contract, the assembler rst o ers a unit price for each component and will pay component suppliers only for the amounts used to meet the actual demand. Based on the unit component prices o ered by the assembler, the two independent component suppliers then decide on the production quantities of their individual components and ship the components to the assembler before the actual demand is realized. Here, we assume that the production CONTACT Kut C. So rso@uci.edu Color versions of one or more of the figures in the article can be found online at www.tandfonline.com/uiie. and/or transportation lead times are long,...

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“…Ray et al, 2005;Teng et al, 2005;Serel, 2008). The extension of the standard newsvendor problem to the case where demand is negatively related to the selling price has received considerable interest from researchers in the operations management field (e.g.…”

Section: Optimal Policy Under Price-dependent Demandmentioning

confidence: 99%

Optimal ordering and pricing in a quick response system

Serel

2009

International Journal of Production Economics

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a b s t r a c tQuick response systems enable retailers to estimate customer demand more accurately, and improve stocking decisions for perishable products with uncertain demand. Retailers place separate orders for a product at two different times before the selling season. Following the initial order, additional market information is obtained, and the second-order amount is decided based on an improved demand forecast. In some cases, purchase cost associated with the second order is uncertain, and demand for the product during the season depends on the selling price. We present a solution procedure for finding the optimal order quantity and selling price in this setting. We also study the case where any desired portion of the initial order can be cancelled after updating the demand forecast. In the numerical study, the optimal price is observed to be relatively insensitive to changes in demand variability.

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Inventory and pricing decisions in a single-period problem involving risky supply

Cited by 71 publications

References 40 publications

Managing supply disruption through procurement strategy and price competition

Managing supply disruption through procurement strategy and price competition

Component procurement strategies in decentralized assembly systems under supply uncertainty

Optimal ordering and pricing in a quick response system

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