•We analyze the trade-off between disruption risk and learning benefits under dual sourcing.•We identify the optimal volume allocation over a finite dynamic planning horizon.•We discuss the impact of ...supplier reliability, cost and learning ability on the optimal allocation.•Symmetric demand allocation is not optimal even if suppliers are symmetric.•We quantify the benefit of dual sourcing compared to single sourcing.
As suppliers are crucial for successful supply chain management, buying companies have to deal with the risks of supply disruptions due to e.g. labor strikes, natural disasters, supplier bankruptcy, and business failures. Dual sourcing is one potential countermeasure, however, when applying it one loses the full potential of economies of scale. To provide decision support, we analyze the trade-off between risk reduction via dual sourcing under disruption risk and learning benefits on sourcing costs induced by long-term relationships with a single supplier from a buyer’s perspective. The buyer’s optimal volume allocation strategy over a finite dynamic planning horizon is identified and we find that a symmetric demand allocation is not optimal, even if suppliers are symmetric. We obtain insights on how reliability, cost and learning ability of potential suppliers impact the buyer’s sourcing decision and find that the allocation balance increases with learning rate and decreases with reliability and demand level. Further, we quantify the benefit of dual sourcing compared to single sourcing, which increases with learning rate and decreases with reliability. When comparing the optimal policy to heuristic dual sourcing policies, a simple 75:25 allocation rule turns out to be a very robust policy. Finally, we perform sensitivity analysis and find that increasing certainty about supplier reliability and increasing risk aversion of a buyer yield more balanced supply volume allocations among the available suppliers and that the advantage of dual sourcing decreases with uncertainty about supplier reliability. Further, we discuss the impact of demand uncertainty.
Global production and sourcing strategies of multinational corporations are strongly influenced by the increasing number of Free Trade Agreements (FTAs). Based on the special local content ...requirements of the North American Free Trade Agreement (NAFTA) for automotive goods, the impact on strategic network design decisions is investigated. The presented model explicitly integrates the different NAFTA legal options to calculate the local content for automotive goods. Furthermore, it considers the possibility to underachieve the local content requirement and to pay penalty duties for NAFTA cross-border deliveries instead. Plant fixed costs have a significant impact on the local content fulfillment and have to be allocated in accordance with the actual plant utilization and the different local content calculation options. Due to the resulting non-linearity of the mixed-integer program, a solution algorithm based on Benders decomposition is presented. In addition, we introduce multiple Benders cuts to improve the efficiency and applicability to real-world planning problems. Compared to piecewise linearization approaches, the run-time can be improved significantly. In a numerical study, the impact of local content requirements on the strategic network design is shown and the different NAFTA options to calculate the local content for automotive goods are compared with each other. Furthermore, computational experiments are performed to evaluate the applicability and efficiency of Benders decomposition.
•We study the special local content rules of the NAFTA for automotive goods.•We present two variants of Benders decomposition to solve the non-linear optimization problems.•We show that Benders decomposition outperforms secants approximation.•Through the right EA-choice supply chain costs can be reduced significantly.
•We analyze simple auction and contract formats in a newsvendor procurement decision.•We show the superiority of a first-price push auction.•The influence of risk aversion is investigated.•Allocation ...of profits between the retailer and suppliers is shown depending on different parameters.
We investigate a newsvendor-type retailer sourcing problem under demand uncertainty who has the option to source from multiple suppliers. The suppliers’ manufacturing costs are private information. A widely used mechanism to find the least costly supplier under asymmetric information is to use a sealed-bid reverse auction. We compare the combinations of different simple auction formats (first- and second-price) and risk sharing supply contracts (push and pull) under full contract compliance, both for risk-neutral and risk-averse retailer and suppliers. We show the superiority of a first-price push auction for a risk-neutral retailer. However, only the pull contracts lead to supply chain coordination. If the retailer is sufficiently risk-averse, the pull is preferred over the push contract. If suppliers are risk-averse, the first-price push auction remains the choice for the retailer. Numerical examples illustrate the allocation of benefits between the retailer and the (winning) supplier for different number of bidders, demand uncertainty, cost uncertainty, and degree of risk-aversion.
A different approach to obtain the economic order quantity and several extensions without taking derivatives is presented. In contrast to previous contributions to this discussion, cost comparisons ...in a finite horizon and analyzing the limiting behavior are used rather than algebraic manipulations of the average cost function and comparison of coefficients.
Many industrial companies today operate under strict employment legislation and work agreements. Since flexible capacity has been widely recognized as an important hedge against uncertain demand, ...there exist strong efforts to introduce more flexible workforce models. In this paper, we investigate the benefits of such labor flexibility and its interplay with machine flexibility from a network capacity investment perspective.
We consider a firm that has to invest simultaneously in labor and machine capacity under uncertain demand and a given network configuration while anticipating the deployment of labor flexibility after demand has been realized. Instruments of labor flexibility range from temporary employment to personnel transfers between plants. The underlying decision problem is formulated as a two-stage stochastic program with recourse.
Based on numerical studies and the analysis of a stylized model, we demonstrate the impact of labor flexibility on the optimal levels of machine and labor capacity. We compare the benefits obtained by personnel transfers with those of temporary workers and find that temporary employment always decreases the number of permanent workers, while personnel transfers may even allow for a larger workforce. Our results further indicate that personnel transfers are more effective in larger manufacturing networks although these benefits are decreasing when most plants in the network are capable of producing more than one product (machine flexibility). Finally, we present evidence for the efficiency of a combined usage of personnel transfers and temporary workers.
We address the problem of coordinating the capacity decisions of two autonomous manufacturers engaged in a buyer–supplier relationship. We propose and analyze a supply contract designed to coordinate ...the companies׳ single period capacities so that both parties end up better off than they would by trading solely through the market. The setting is frequently found in supply chains, as the contract does not forbid the parties to also trade in the market. Under the proposed contract, each party decides on his own medium term capacity when demands are still only probabilistically known. When the demand is realized, the supplier must sell to the buyer at a discount contract price up to a contract reservation quantity, and the buyer will pay a contract penalty for each unit he reserved but did not order. The supplier can sell any leftover capacity on the market and if the buyer needs more than the reserved quantity, he must purchase from the supplier at market price or from the market if the supplier׳s capacity does not suffice. The main achievements gained through this research are (i) conditions for the companies׳ capacity decisions to obtain coordination under the contract, (ii) conditions for the contract to coordinate the parties׳ decisions and leave both better off, (iii) characterization of contract instances in which the profit can be arbitrarily distributed between the parties, and (iv) identification of two distinct kinds of gain produced by the contract. Finally, we illustrate the main properties of the contract with numerical examples.
•We analyze the coordination of capacities of two manufacturers in a supply chain.•We analyze a contract that leads the two manufacturers to win–win capacity decisions.•The contract always improves joint expected gain by expanding supplier׳s capacity.•Expansion of buyer׳s capacity is not always required for maximum dyad׳s joint gain.•Maximum joint contract gain can be obtained with different gains for each party.
The phenomenon of copycats is common in a wide range of industries. Recently, to indicate product authenticity and combat copycats, many brand name companies (BNCs) have started selling products ...through retailers. These BNCs deploy a scalable protocol that is integrated into a permissioned blockchain technology (PBT) platform. We examine how PBT combats copycats in the supply chain and how it benefits BNCs. Although PBT implementation helps novice customers identify product authenticity and the real quality of products, that is, to take advantage of a quality disclosure effect, we show that, if and only if the number of novice customers is large enough, then selling through a PBT retailer can effectively combat copycats. Thus, PBT increases the profit of the BNC, consumer surplus, social welfare, and reduces the profit of a copycat. Moreover, conventional wisdom tells us that PBT ensures supply chain transparency and motivates a firm to improve its product quality. However, the BNC reduces the quality of its products when using PBT, because an improvement in product quality is not profitable if consumers can distinguish between genuine and imitation products. Furthermore, we extend the model by considering the case where the BNC itself implements PBT. Without the double marginalization effect, even if the number of novice customers is small, blockchain technology may exist in the market (the BNC self‐implements). In addition, if the unit production cost of a genuine product is large enough, social welfare increases when production cost increases.
Although considerable attention has been separately given to factors such as power structures, price-dependent demand, and markup pricing schemes, there has been limited exploration of the combined ...effects of these factors on supply chain efficiency and the leader’s advantage. We propose a game theoretic model in which a manufacturer sells a single product to a newsvendor retailer who sets both optimal order quantity and selling price under uncertain price-dependent demand. Furthermore, we examine a supply network wherein a single retailer fulfills orders using a global manufacturer for regular orders and a local manufacturer to clear any shortages. Through numerical analysis, we show that the retailer always prefers to charge a percentage markup. In a two-player game, channel efficiency is higher when the retailer is the leader under linear demand; however, under iso-elastic demand, the manufacturer being a leader brings a higher channel efficiency. When a local manufacturer is involved as a second manufacturer, channel efficiency is higher when the retailer remains a follower, as this induces more fierce wholesale price competition between the two manufacturers. Additionally, when demand uncertainty is high in the two-player game with linear demand, the retailer as a follower can achieve higher profits, whilst high uncertainty under iso-elastic demand decreases both players’ profits. Moreover, it becomes advantageous for the retailer to have a local manufacturer as demand uncertainty increases, even when the local manufacturer announces the wholesale price first.
•Game theoretic models for a supply chain and a supply network are studied.•The impact of power structure on channel efficiency and expected profits is explored.•In a two-player game, a retailer charging a percentage markup results in higher channel efficiency under linear demand.•In a three-player game, a retailer acting as a follower brings higher channel efficiency.
•Benders decomposition approach for the Hazmat Transport Network Design Problem.•Scalability for large number of commodities through slave problem decomposition.•A partial decomposition for bilevel ...problems.•Significant run time improvement over a cutting-plane method from the literature.•Insights on the necessity of a bilevel formulation.
We propose a new method for solving the Hazmat Transport Network Design Problem. In this problem, the government wants to reduce the risk of hazardous accidents for the population by restricting the shipment of hazardous goods on roads. When taking that decision, the government has to anticipate the reaction of the carriers who want to minimize the transportation costs by solving a shortest path problem. We use a bilevel formulation that guarantees stable solutions and transform this model into a mixed-integer linear program by applying the Karush–Kuhn–Tucker conditions. This model is solved to optimality with a multi-cut Benders decomposition. Valid inequalities and an acceleration approach for the master problem further reduce both the iteration number and the run time. Moreover, a partial decomposition technique for bilevel problems is introduced. The numerical study shows the computational benefits of the method and run time savings of more than 50% for large instances compared to a cutting plane method from the literature. The method is especially efficient for large number of shipments. Finally, we show that the bilevel model reduces the risk by 35% on average compared to a two-step decision process that does not anticipate the carriers’ reaction.
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