On variance amplification in a three-echelon supply chain with minimum mean square error forecasting

We analyse a three echelon supply chain model. First-order autoregressive end consumer demand is assumed. We obtain exact analytical expressions for bullwhip and net inventory variance at each echelon in the supply chain. All of the three supply chain participants employ the order-up-to policy with the minimum mean square error forecasting scheme. After demonstrating that the character of the stochastic ordering process observed at each level of the supply chain is mathematically tractable, we show that the upper stream participants have complete information of the market demand process. Then we quantify the bullwhip produced by the system, together with the amplification ratios of the variance of the net inventory levels. Our analysis reveals that the level of the supply chain has no impact upon the bullwhip effect, rather bullwhip is determined by the accumulated lead-time from the customer and the local replenishment lead-time. We also find that the conditional variance of the forecast error over the lead-time is identical to the variance of the net inventory levels and that the net inventory variance is dominated by the local replenishment lead-time.     

A delay-in-payment contract for Pareto improvement of a supply chain with stochastic demand

We consider a supply chain consisting of a single supplier and a single retailer with stochastic customer demand, which is operated over an infinite horizon. We propose a delay-in-payment contract to coordinate the supply chain. With this contract, the supplier allows the retailer to pay partial order cost at the ordering epoch, and to pay the remaining portion after a permissible number of periods. The system is formulated as a stochastic dynamic programming problem. It is shown that there exists a base-stock policy to be optimal. Compared with the traditional wholesale-price contract, the delay-in-payment contract with appropriate parameters can achieve a Pareto improvement (i.e., the performances of both the supplier and the retailer using the delay-in-payment contract are better than those using the wholesale-price contract). Numerical studies are performed to investigate both the effectiveness of the Pareto improvement, and the impact of the major parameters of the delay-in-payment contract on the system performance.     

The single-period inventory problem: Extension to random yield from the perspective of the supply chain

A special form of the single-period inventory problem (newsvendor problem) with a known demand and stochastic supply (yield) is studied. A general analytic solution for two types of yield risks, additive and multiplicative, is described. Numerical examples demonstrate the solutions for special cases of uniform distribution yield risks. An analysis of a two-tier supply chain of customer and producer reveals that the customer may find it optimal to order more than is needed, since a larger order increases the producer's optimal production quantity.     

A note on the random yield from the perspective of the supply chain

Keren [The single-period inventory problem: extension to random yield from the perspective of the supply chain. Omega 2009;37:801-10] considers a supply chain in which the distributor faces a known demand and orders from the producer subject to a random production yield, and shows that the distributor may find it optimal to order more than what is needed due to supply uncertainty under a uniform distribution. However, Keren (2009) does not address the questions whether it is always optimal for the distributor to order more, or when to order more. In this note, we point out that ordering more is not always an optimal strategy and specify the condition under which this strategy becomes optimal. We also examine the profit losses of the supply chain members resulting from the random yield supply, which is another question not considered in Keren (2009). The producer is found to possibly benefit from this production yield uncertainty, although the performances of the distributor and of the entire supply chain are always undermined. Our results are obtained under a more generalized yield distribution, and can thus be applied to wider industrial domains.     

A network-based approach to integrated supply chain design

The inherent complexity of supply chains, combined with their economic importance, has prompted research in supply chain management. While there has been a significant amount of work reported in modelling supply chains, the effectiveness of these models in addressing the complex area of supply chain management is questionable. What is giving added urgency to the need for research in this area are the recent developments in communications that offer the promise of connecting suppliers, assemblers and customers in a seamless network of information that can form integrated supply chain management. This paper aims to address the deficiency in modelling by proposing a methodology that models the integrated supply chain as an abstracted network, called a Trans-Net. The Trans-Net approach offers three main potential advantages. First, the multiple participants in a supply chain can be modelled without undue complexity. Second, it is an approach that allows users to examine the interactions between different considerations so that important attributes such as cost and lead-time can be readily calculated and bottleneck areas identified. Third, it applies a mathematical formalism to the problem, with the potential of being relatively straightforward to computerize.     

Coordinating a three level supply chain with flexible return policies

This paper studies the coordination issue of a three level supply chain selling short life cycle products in a single period model. The manufacturer first negotiates the trade contract with the retailer, then with the supplier. We construct the so-called flexible return policy by setting the rules of pricing while postponing the determination of the final contract prices. With return policies between each pair of adjacent firms, unsold products or used modules dissembled from the unsold products are returned level by level from the retailer to the upstream firms and each firm shares in the loss due to the overstock. We show that the three level supply chain can be fully coordinated with appropriate contracts and the total profit of the channel can be allocated with any specified ratios among the firms.     

Sharing shipment quantity information in the supply chain

This paper evaluates the benefit of a strategy of sharing shipment information, where one stage in a supply chain shares shipment quantity information with its immediate downstream customers—a practice also known as advanced shipping notice. Under a periodic review inventory policy, one supply-chain member places an order on its supplier every period. However, due to supplier's imperfect service, the supplier cannot always exactly satisfy what the customer orders on time. In particular, shipment quantities arriving at the customer, after a given lead-time, may be less (possibly more) than what the customer expects—we define this phenomenon as shipment quantity uncertainty. Where shipment quantity information is not shared with customers, the only way to respond is through safety stock. However, if the supplier shares such information, i.e. customers are informed every period of the shipment quantity dispatched, the customer may have enough time to adapt and resolve this uncertainty by adjusting its future order decisions. Our results indicate that in most circumstances this strategy, enabled by information technologies, helps supply-chain members resolve shipment quantity uncertainty well. This study provides an approach to quantify the value of shared shipment information and to help supply-chain members evaluate the cost-benefit trade-off during information system construction. Numerical examples are provided to indicate the impact of demand/shipment parameters on strategy implementation. While previous studies mainly focus on the information receiver's perspective, we evaluate a more general three-tier linear supply chain model via simulation, studying how this strategy affects the whole supply chain: the information sender, the information receiver and the subsequent downstream tier.     

Inventory control for the supply chain: An adaptive control approach based on the identification of the lead-time

In this paper, an Internal Model Control (IMC) scheme is incorporated in production inventory control systems in a complete supply chain. This control scheme presents a good target inventory tracking under the perfect knowledge of the system. Furthermore, the inventory tracking and load disturbance rejection control problems can be tackled separately. However, the closed-loop performance of the IMC scheme may be degraded due to a mismatch between the modelled and actual delay or to the fact that delays may be time-varying. Thus, the IMC control scheme is enhanced in this work with a novel method for the online identification of lead times based on a multimodel scheme. In this way, all benefits of the IMC scheme can be exploited. A detailed discussion of the proposed production inventory system is provided including a stability and performance analysis as well as the identification capabilities of the algorithm. Several simulation examples illustrate the efficiency of the approach.     

Centralization versus decentralization: Risk pooling,risk diversification,and supply chain disruptions

We investigate optimal system design in a multi-location system in which supply is subject to disruptions. We examine the expected costs and cost variances of the system in both a centralized and a decentralized inventory system. We show that, when demand is deterministic and supply may be disrupted, using a decentralized inventory design reduces cost variance through the risk diversification effect, and therefore a decentralized inventory system is optimal. This is in contrast to the classical result that when supply is deterministic and demand is stochastic, centralization is optimal due to the risk-pooling effect. When both supply may be disrupted and demand is stochastic, we demonstrate that a risk-averse firm should typically choose a decentralized inventory system design.     

Outsourcing vs. in-house production: a comparison of supply chain contracts with effort dependent demand

We analyze the effort and pricing decisions in a two facility supply chain in which one of the parties can exert costly effort to increase demand. We consider an outsourcing model in which the supplier makes the effort decision and an in-house production model in which the manufacturer decides on the effort level and we compare these two models with each other. We analyze and compare several contracts for decentralized supply chain models and we aim to find which contracts are best to use in different cases. We find the optimal contract parameters in each case and perform extensive computational testing to compare the efficiencies of these contracts. We also analyze the effect of the powers of the parties in the system and the effect of system parameters on the performances of the contracts and on the optimal values of the model variables such as price, effort and demand.     

A systematic approach for supply chain conflict detection with a hierarchical Petri Net extension

Coordinating and managing distributed entities in a supply chain is a challenging task due, in part, to conflicts present in such systems. If not handled effectively, the conflict can degrade the performance of the system as a whole due to the fact that each individual entity may be working towards goals that sub-optimize the integrated system. Therefore, the ability to discover conflicts would be a valuable asset, particularly if the discovery occurred proactively. This paper presents a methodology, extending the concept of basic Petri Nets, to discover supply chain conflict before they occur and cause detrimental effects to system performance. The approach involves linking hierarchical levels of the supply chain system and detecting conflicts occurring when the single entities, each optimized for it own operations, are combined together in a supply chain. These conflicts are not obvious or intuitive in examining the single entities of the supply chain, but when integrated the conflicts are discovered by the methodology. We applied the proposed methodology on a real-world supply chain to illustrate the validity of the tool. Although, further research is needed to fully explore this method of conflict detection, we believe that this research does indeed provide some much needed insight into the daunting task of conflict discovery and therefore proactive handling of these potentially negative occurrences in the supply chain.     

Single or dual sourcing: decision-making in the presence of supply chain disruption risks

The focus of this paper is placed on evaluating the impacts of supply disruption risks on the choice between the famous single and dual sourcing methods in a two-stage supply chain with a non-stationary and price-sensitive demand. The expected profit functions of the two sourcing modes in the presence of supply chain disruption risks are first obtained, and then compared so that the critical values of the key factors affecting the final choice are identified. Finally, the sensitivity of the buyer's expected profit to various input factors is examined through numerical examples, which provide guidelines for how to use each sourcing method.     

Development of demand pull type control methods: The design of block action production control methods to reduce throughput time and improve supply chain synchronization

In this paper the implementation of time based manufacturing strategies and pull type control systems in an organization manufacturing electrical switchgear built to customers individual requirements are discussed in detail. The concept of block control to synchronize the production time of all internally and externally sourced components and materials is also introduced in an attempt to simplify production control methods and reduce throughput time. Savings in time and cost are described during a twenty months period of restructuring. Foundations were laid for a second objective which is an attempt to gain some linkage between throughput time reduction and resultant production costs.     

On service degrade at a discount: Capacity, demand pooling, and optimal discounting

In this paper we study the capacity investment decisions and operational strategies of a firm providing two-class services facing uncertain demands. The capacity decisions of the resources are made before demands are observed. Each service can be implemented by its corresponding resource. Should a mismatch between the capacity and the actual demand for the services arise, the low-class resource can be used as a substitute for the high-class service. We introduce an operational strategy called degrade-at-a-discount, where a price discount is offered to motivate customers to accept a lower class service when their original choice is out of capacity. By formulating the problem as a one-period, two-stage stochastic problem, we analyze how to set up the optimal capacity and the optimal discount. We also conduct a comprehensive numerical study to show the benefits of the degrade-at-a-discount strategy.     

The impact of timely information on organisational performance in a supply chain

Information produced by ERP systems is termed JIT-information, since it is provided at the right time in the right place with a minimum of waste. The JIT-information construct is defined and described and a measurement scale is developed. A JIT-information performance model is proposed and assessed using a structural equation modelling methodology. The results indicate that the model fits the data well: (1) supply chain management strategy positively impacts JIT-information, (2) JIT-information directly impacts both logistics and organisational performance, and (3) logistics performance directly impacts organisational performance.     

Price competition,cost and demand disruptions and coordination of a supply chain with one manufacturer and two competing retailers

This paper studies the coordination of a supply chain with one manufacturer and two competing retailers after the production cost of the manufacturer was disrupted. We consider two coordination mechanisms: an all-unit quantity discount and an incremental quantity discount. For each mechanism, we develop the conditions under which the supply chain is coordinated and discuss how the cost disruption may affect the coordination mechanisms. For the all-unit quantity discount scheme, we find that the manufacturer charges the lower-cost retailer for a lower unit wholesale price in order to induce him to order more products. If the costs of two retailers have a remarkable difference, then the all-unit quantity discount scheme cannot coordinate the supply chain with disruptions. While the cost disruption may affect the wholesale prices, order quantities as well as retail prices, it is optimal for the supply chain to keep the original coordination mechanism if the production cost change is sufficiently small. The model is also extended to the case with both cost and demand disruptions. The equilibrium strategies of the retailers are investigated when the manufacturer cannot timely react to the disruptions such that she has to keep the original mechanism. We illustrate the results by numerical examples.     

A pathway towards true sustainability: A recognition foundation of sustainable supply chain management

Sustainable supply chain management has developed at an exponential rate into a distinct research field, but its progress towards sustainability is rather modest, and a coherent theoretical foundation for guiding companies towards a stronger integration of sustainability into their operations and supply chains is still missing. This article outlines how the tradition of critical management studies could foster higher levels of sustainable business and sustainable supply chains. We argue that the underlying instrumental logic of contemporary corporate engagement with sustainability, driven by stakeholder pressures, is a key obstacle when aiming for ‘truly’ sustainable supply chains. Referring to a recognition perspective may dissolve the reified pursuit of profit-seeking and other merely economic performance targets to recall the genuine—and in its essence truly radical—claim that the concept of sustainable development is inherently a normative one imposed on all of us. Recognition may lead the way for companies to adopt a caring stance for people and the surrounding environment and to respond to the legitimate expectations of all groups in society while conceiving themselves as an integral part of such a society. We conclude by discussing how far the theoretical perspective of recognition is enrooted in the European tradition of institutionalised business–society relationships and therefore could be seen as a rediscovery of a genuinely European way of making business and managing supply chains.     

Performance measurement of supply chain management using the analytical hierarchy process

Performance measurement of supply chain management (SCM) is a rapidly growing multi-criteria decision-making problem owing to the large number of factors affecting decision-making. The right choice of performance metrics and measures is critical to the success and competitiveness of the firms in the era of globalisation. Recognising the multiple objective nature of the problem, this paper proposes the use of the analytical hierarchy process (AHP) methodology as aid in making SCM evaluation decisions. For pair-wise comparison in AHP, a survey methodology is used. The methodology presented can help firms to prioritise and formulate viable performance measurement strategies in the volatile and complex global decision environment from different balanced scorecard (BSC) perspectives. A demonstration of the application of this methodology in a real life problem is presented.     

Decision support for lead time and demand variability reduction

Companies undertaking operations improvement in supply chains face many alternatives. This work seeks to assist practitioners to prioritize improvement actions by developing analytical expressions for the marginal values of three parameters – (i) lead time mean, (ii) lead time variance, and (iii) demand variance – which measure the marginal cost of an incremental change in a parameter. The relative effectiveness of reducing lead time mean versus lead time variance is captured by the ratio of the marginal value of lead time mean to that of lead time variance. We find that this ratio strongly depends on whether the lead time mean and variance are independent or correlated. We illustrate the application of the results with a numerical example from an industrial setting. The insights can help managers determine the optimal investment decision to modify demand and supply characteristics in their supply chain, e.g., by switching suppliers, factory layout, or investing in information systems.     

A Structural model for the impact of supply chain relationship traits on project performance in construction

The objectives of this study are to discover the supply chain relationship traits in construction and their impact on the project performance. Using factor analysis technique, the supply chain relationship traits were determined to be collaboration in the supply chain, support and commitment to the supply chain, and sharing the benefits and risks. A two-step SEM model was then established to test the hypothesised relationship between the supply chain relationship traits and the project performance. The findings indicated that the supply chain relationship traits have a significant positive impact on the project performance. This study contributes to the body of knowledge relating to the construction supply chain management. The findings may help the parties to identify the attributes that may improve the relationships among them and result in better project performance.