Impacts of decision sequences on a random yield supply chain with a service level requirement

Abstract

The last decade has witnessed a rising trend of social network structures where decision making may be influenced by members’ channel power. This paper considers a decentralized supply chain that comprises a random yield supplier and a manufacturer with a service level requirement. The supplier determines the production quantity while the manufacturer decides on the replenishment quantity. We investigate several game-theoretic models with respect to decision sequences of the supplier and manufacturer with a service level requirement. We compare firms’ equilibrium production/order quantity and profits under these models. Both firms achieve a higher payoff in the manufacturer-leader game than in the supplier-leader and simultaneous move games, which indicates that the manufacturer-leader game is Pareto efficient from the channel structure perspective. A critical value is observed at the service level, beyond which the supplier’s profit decreases, while the manufacturer’s profit increases in the service level requirement. Interestingly, the critical value is independent of the models and it just depends on the wholesale price and production cost. We also examine the decentralized random yield supply chain under the vendor-managed inventory arrangement. Finally, numerical computations are conducted to evaluate supply chain performance with respect to various parameters.