Investment and lot size planning in a supply chain: coordinating a just-in-time-delivery with a Harris- or a Wagner/Whitin-solution

Abstract

This article focuses on the question how optimal decisions in a two-firm supply chain can be determined and influenced when the lot size planning of the two firms is expanded to include investment decisions and to coordinate the just-in-time-delivery with the lot size planning on the basis of the Harris- or the Wagner/Whitin-approach. The link between these planning aspects is new. As an approach to a solution of the investment problem we examine a biform game, and consider the solution concept of the core and the cooperative Nash solution in resolving the cooperative game on the second stage of the biform game. We discuss on what terms the two strategic players make their investments. The lot size planning of the supplier (firm 1) is firstly coordinated with his just-in-time-delivery on the basis of the Harris-approach. Then, in a second step, we check to what extent the coordination can be improved if we apply the Wagner/Whitin-approach instead of the Harris-approach because of the dynamic demand structure of firm 1. For all of these decision cases we specify the payoffs of the biform game and look for optimal solutions of the two players. As a special result of the methodological consideration turns out that disposition benefits by Wagner/Whitin will lead to dominant solutions.