Supplier Development and Integration in Competitive Supply Chains

Jin, Yannan; Hu, Qiying; Kim, Sang Won; Zhou, Sean X.

doi:10.2139/ssrn.2848993

Cited by 2 publications

(2 citation statements)

References 6 publications

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“…In addition to the preceding empirical studies, many papers develop quantitative models to examine different forms of supplier development strategies, such as increasing supplier's capacity (Li 2013), improving reliability (Babich 2010, Wang et al 2010), enhancing quality level (Zhu et al 2007), and achieving cost reduction (Iyer et al 2005, Kim 2000. More specifically, Li (2013) studies a buyer's sourcing strategy including pricing mechanism and the supply base design, which concerns the number of suppliers and capacity to be invested in each supplier.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Wang et al (2010)explore a model in which a firm can source from multiple suppliers and/or exert effort to improve supplier reliability (random capacity or random yield) and solve the optimal procurement quantities and improvement efforts. Zhu et al (2007) explore how a buyer should invest in quality improvement of its supplier. Similar to our focus on the cost reduction efforts exerted by manufacturers, Iyer et al (2005) employ a principal-agent framework to model the interaction between a buyer and a supplier.…”

Section: Literature Reviewmentioning

confidence: 99%

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Supplier Development and Integration in Competitive Supply Chains

Jin

Kim

et al. 2019

Production and Operations Management

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S upplier development and supplier integration are two deeply interconnected strategic tools that manufacturers often employ to improve the efficiency and competitiveness of their supply chains. This paper studies the interaction of these two strategic decisions in a competitive environment. Specifically, we consider a duopoly model where two supply chains, each consisting of one manufacturer and one supplier, sell substitutable products in the market. Each manufacturer orders components from its supplier and decides whether to integrate with the supplier and how much to invest to help reduce its cost. We find that, in most cases, a manufacturer invests more on supplier development after it integrates with its supplier; and both manufacturers integrate with their suppliers at equilibrium. However, when the heterogeneity of the manufacturers' supplier development capabilities is sufficiently high and the more capable manufacturer integrates, the less capable manufacturer would invest less on supplier development after integrating its supplier; and at equilibrium, the less capable manufacturer prefers not to integrate. Furthermore, when considering the suppliers' incentives to be integrated, we find that the less capable manufacturer is more likely not to integrate with its supplier. We also extend our model to another commonly seen sourcing structure, that is, diversified sourcing, where each manufacturer sources from two common suppliers (but each only considers supplier integration and development for one distinct supplier). In contrast to the previous case (which we call dedicated sourcing), under diversified sourcing, supplier integration of a manufacturer always leads to its more supplier development investment and both manufacturers would integrate at equilibrium. Finally, when each manufacturer could choose whether to source from one or two suppliers, we show that dedicated sourcing is the equilibrium structure.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Supplier Development and Integration in Competitive Supply Chains

Jin

Kim

et al. 2019

Production and Operations Management

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To Share or Not to Share? Capacity Reservation in a Shared Supplier

Ahn

Sinha

2018

SSRN Journal

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W hen a supplier serves multiple buyers, the buyers often reserve the supplier's capacity in advance to secure the supply to fulfill their demand. In this study, we analyze two common types of capacity reservation: exclusive and first-priority reservations. Both reservations give a buyer first access to its reserved capacity, but the reservations differ in how the leftovers (if any) are used. In most cases, as long as the buyer gets to use the reserved capacity first, it does not pay attention to how the leftover capacity is utilized, leaving that to the supplier's discretion (first-priority). However, in a number of cases, buyers prohibit discretionary use of the reserved capacity ("no one touches my leftovers") and implement the restriction by placing an employee at the supplier or installing monitoring devices (exclusive). One potential benefit of first-priority capacity is resource pooling: allowing access to one another's leftovers can reduce the amount of capacity reserved by the buyers while enabling the supplier to satisfy buyers' orders better in some cases. The Operations Management literature suggests that the benefit of resource pooling is greater when the demand correlation is negative and smaller when the correlation is positive. We investigate the capacity reservation type and level that each buyer chooses facing uncertain (and correlated) demand. We investigate how the reservation price and demand correlation affect the equilibrium outcome. We also examine the supplier's decision to set the optimal reservation prices. We find that at least one firm reserves first-priority capacity in equilibrium as long as the supplier offers a discount for first-priority capacity (or charges a premium for exclusive capacity). Depending on the reservation price difference and demand correlation, we find that the equilibrium outcome is inefficient (i.e., not Pareto optimal) for the buyers when they settle in a free-rider or a prisoner's dilemma equilibrium. We show that the supplier always induces both buyers to reserve a large amount of exclusive capacity so that the supplier can make profits from both capacity reservation and production. While this seems like the best scenario for the supplier, we show that, allowing bilateral capacity transfer (e.g., the buyers trading their reserved capacity) can improve not only the buyers' profits but also the supplier's profit.

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Supplier Development and Integration in Competitive Supply Chains

Cited by 2 publications

References 6 publications

Supplier Development and Integration in Competitive Supply Chains

Supplier Development and Integration in Competitive Supply Chains

To Share or Not to Share? Capacity Reservation in a Shared Supplier

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