Managing Project Due Date and Material Supply in Project Supply Chains

Abstract

This paper studies the coordinated management of project due date and material supply in project supply chains. We consider a two-stage project supply chain with an upstream supplier supplying key material to a downstream project firm under a flexible wholesale price contract. The project is subject to disruptions that impact both project duration and material demand. Therefore the project firm has to carefully decide its promised project due date to its customer, against which harsh penalties will be assessed, as well as material orders. The flexible wholesale price contract offers potential incentive for the supplier to carry excess materials that protect the project firm from material shortages. We first study a special case of our model that considers a single wholesale price contract allowing for only one ordering opportunity to the supplier. Our analysis indicates that project due date and material order decisions substitute each other in general, but they complement each other when project delay penalty rate changes. As the uncertainty distribution gets stochastically larger, we find that the project firm will always increase its material orders, but may increase or decrease its project due date. For the flexible wholesale price contract, we characterize the optimal solutions for the project supply chain by the implied decision coordination along two dimensions: supply chain coordination (between the project firm and the supplier) and cross-functional coordination (between the project and the procurement managers). We provide a contract space partition by the decision coordination and conduct sensitivity analysis of our solutions. We characterize the wholesale price contracts that achieve channel coordination and are Pareto efficient. Our analysis shows that not all Pareto efficient contracts coordinate the chain and not all inferior contracts can be improved to achieve channel coordination. Our numerical studies find that cost parameters have a greater impact on the contract space partition than distribution function, indicating that the type of coordination and policy needed for managing our project supply chain depends more on cost parameters than on risk parameters.