Two-tier Supply Chain Research Articles

The Value of Information Design in Supply Chain Management

This paper studies an information design problem of a retailer in a two-tier supply chain that procures a single type of product from a supplier. The supplier needs to decide on a production quantity by balancing the shortage cost and the excess inventory holding cost with respect to the retailer’s demand. The retailer’s demand is random, but the retailer receives an informative signal about the demand before the supplier sets the production quantity and places orders after learning the demand realization. The retailer wants to reduce the shortage cost, and to this end, the retailer can disclose information about the retailer’s signal to persuade the supplier to increase production levels. For this setup, we characterize the optimal information disclosure policy of the retailer and shed light on settings in which the retailer strictly benefits from carefully designed information disclosure policies relative to a full- or a no-disclosure policy. This paper was accepted by Jeannette Song, operations management. Funding: O. Candogan acknowledges the NSF (National Science Foundation) [Grant 2216912] for “Institute for Data, Econometrics, Algorithms and Learning.” Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.03004 .

Disturbance in Multitier Supply Chain Under Competition

Disturbances in production along with volatile demand have raised concerns over shortfalls in the global supply chain and prompted the need to build a more diversified supply chain with competitive suppliers. This research investigates the impact of disturbances on a two-tier supply chain network with asymmetric competing firms. We establish the equilibrium in a unique structure that represents the maximum set of profitable upstream supply paths achievable through competition and exhibits stability under specific conditions. We evaluate the efficiency of the supply chain configuration by a shortfall problem and solve it with an adapted pseudoflow algorithm that efficiently identifies the mismatches between shortfalls and capacity surpluses in the multitier network. The parametric analysis reveals that the disturbance loss can be significantly offset by supplier competition, although the marginal benefit of competition decreases rapidly with the number of suppliers. Furthermore, shortfalls could be magnified by network asymmetries that increase configuration inefficiency, and supply chain performance could be improved by pushing high-cost firms to cease production. Simulation results indicate that the supply chain with a moderate level of competition and a balanced configuration can be robust against disturbance and demand volatility.

Independent operation or coordinated integration? Enhancing the system resilience of ports in dealing with congestion based on a bilateral bargaining game

Fierce competition between ports may trigger substantial issues including port congestion, further wreaking havoc on the system resilience of ports. The coordinated integration of ports becomes a feasible and indispensable strategy for mitigating competitive pressure and enhancing the system resilience. In a two-tier supply chain within trade activities between two adjacent ports, we discuss the competitive and cooperative strategy selections between ports by a bilateral bargaining game to investigate how to improve the system resilience of ports in coping with congestion. The results reveal that port cooperation has the advantage of improving throughput and the system resilience of ports by alleviating port congestion, but becomes more challenging as the advantageous port's bargaining power and competitive intensity increase. Although under the pressure of high freight rates, shipping companies are still willing to actively participate in and promote the coordinated integration of ports for a premium service provided by ports. From the overall shipping supply chain, port cooperation optimizes the entire operation of port system and promotes profits from the high system resilience, demonstrating a better environmental performance by dealing with congestion. In light of the conclusions, it is essential to vigorously establish a port-port alliance through coordinated contracts to tackle congestion and enhance resilience, thereby boosting competitiveness and ensuring profitability in the whole system of ports.

Evolutionary game theoretical approach for reducing carbon emissions in a complex supply chain organization

PurposeOur research explores the intricate behavior of low-carbon supply chain organizations in an ever-evolving landscape, emphasizing the profound implications of government-mandated low-carbon policies and the growing low-carbon market. Central to our exploration is applying a combined game theory model, merging Evolutionary Game Theory (EGT) with the Shapley Value Cooperative Game Theory Approach (SVCGTA).Design/methodology/approachWe establish a two-tier supply chain featuring retailers and manufacturers within this novel framework. We leverage an integrated approach, combining strategic Evolutionary Game Theory and Cooperative Game Theory, to conduct an in-depth analysis of four distinct low-carbon strategy combinations for retailers and manufacturers.FindingsThe implications of our findings transcend theoretical boundaries and resonate with a trinity of economic, environmental and societal interests. Our research goes beyond theoretical constructs to consider real-world impacts, including the influence of changes in government low-carbon policies, the dynamics of consumer sensitivities and the strategic calibration of retailer carbon financing incentives and subsidies on the identified ESS. Notably, our work highlights that governments can effectively incentivize organizations to reduce carbon emissions by adopting a more flexible approach, such as regulating carbon prices, rather than imposing rigid carbon caps.Originality/valueOur comprehensive analysis reveals the emergence of an Evolutionary Stability Strategy (ESS) that evolves in sync with the phases of low-carbon technology development. During the initial stages, our research suggests that manufacturers or retailers adopt low-carbon behavior as the optimal approach.

Financing a Capital-Constrained Supply Chain under Risk Regulations: Traditional Finance versus Platform Finance

Small- and medium-sized enterprises (SMEs) frequently face challenges in obtaining financial assistance from traditional banks. Platform Supply Chain Finance (PSCF) has emerged as a promising solution for financing issues among SMEs, with an added focus on integrating sustainability aspects. This study focused on a two-tier supply chain as its primary research topic to find strategies to enhance supplier financial viability and improve the efficiency and profitability of the main manufacturing enterprise. In this study, we establish three distinct hypotheses corresponding to the three models involving supplier and manufacturer participation, encompassing parameters such as production batch size, pricing, and supply chain profit. First, it examined financing decisions through the lens of core enterprise-led platform finance. Second, it applied the Stackelberg game theory to investigate financing decisions in three distinct modes: traditional finance, platform internal finance, and external platform finance. Suppliers, manufacturers, and banks can be seen as participants in a Stackelberg game. In this game, suppliers act as leaders, making production and procurement decisions first, while manufacturers and banks act as followers, adjusting their behavior based on the suppliers’ decisions. Finally, it performed a comparative analysis of decisions and supply chain efficiency across these modes. When the risk regulation cost coefficient falls below a certain threshold, suppliers are willing to set up their own PSCF and there is an optimal level of risk regulation effort within the interval (0, 1). We compare platform finance with traditional finance and find that the traditional finance model maximizes profits for suppliers, while the external financing model maximizes profits for manufacturers and the overall supply chain profit. Findings provide insights for platforms, suppliers, manufacturers, and banks to implement optimal financing and channel structures to increase their profits and promote the sustainable development of the financial supply chain. In addition, future research on blockchain platform models would be highly meaningful.

Information Design and Sharing in Supply Chains

We study the interplay between inventory replenishment policies and information sharing in the context of a two-tier supply chain with a single supplier and a single retailer serving an independent and identically distributed Gaussian market demand. We investigate how the retailer’s inventory policy impacts the supply chain’s cumulative expected long-term average inventory costs [Formula: see text] in two extreme information-sharing cases: (a) full information sharing and (b) no information sharing. To find the retailer’s inventory policy that minimizes [Formula: see text], we formulate an infinite-dimensional optimization problem whose decision variables are the MA([Formula: see text]) coefficients that characterize a stationary ordering policy. Under full information sharing, the optimization problem admits a simple solution and the optimal policy is given by an MA(1) process. On the other hand, to solve the optimization problem under no information sharing, we reformulate the optimization from its time domain formulation to an equivalent z-transform formulation in which the decision variables correspond to elements of the Hardy space H2. This alternative representation allows us to use a number of results from H2 theory to compute the optimal value of [Formula: see text] and characterize a sequence of ϵ-optimal inventory policies under some mild technical conditions. By comparing the optimal solution under full information sharing and no information sharing, we derive a number of important practical takeaways. For instance, we show that there is value in information sharing if and only if the retailer’s optimal policy under full information sharing is not invertible with respect to the sequence of demand shocks. Furthermore, we derive a fundamental mathematical identity that reveals the value of information sharing by exploiting the canonical Smirnov–Beurling inner–outer factorization of the retailer’s orders when viewed as an element of H2. We also show that the value of information sharing can grow unboundedly when the cumulative supply chain costs are dominated by the supplier’s inventory costs. Funding: R. Caldentey acknowledges the University of Chicago Booth School of Business for financial support. Supplemental Material: The online appendix is available at https://doi.org/10.1287/moor.2023.008 .

Interactions between supplier encroachment format and pricing scheme with horizontal shareholding

This paper examines the interactions between supplier encroachment formats (centralized encroachment or decentralized encroachment) and pricing schemes (specific pricing or uniform pricing) in a two-tier supply chain consisting of one supplier and two incumbent retailers, wherein there exists horizontal shareholding between downstream retailers. The analytical results indicate that, under specific pricing scheme, both the incumbent retailers and the supplier prefer decentralized encroachment if the magnitude of shareholding level and the encroachment cost are high. Under uniform pricing scheme, both the incumbent retailers prefer decentralized encroachment while the supplier prefers centralized encroachment. Under centralized encroachment format, both the acquiring retailer and the supplier have consistent preference over pricing scheme (i.e., specific pricing scheme) while the acquired retailer prefers uniform pricing scheme. Under decentralized encroachment format, both the incumbent retailers prefer uniform pricing scheme if the magnitude of shareholding level is low and the encroachment cost is high, or the magnitude of shareholding level is high; both the supplier and the encroaching retailer prefer specific pricing scheme if the encroachment cost is high.

Surface sanitation as a recommended treatment for preventing fungal infection and extending the shelf life of watermelon

Watermelon ranks fifth in Malaysian fruit production after coconut, durian, banana and pineapple. Its export value has increased significantly at 6.2%, from 60 thousand MT (2018) to 64 thousand MT. Losses happen throughout the supply chain, especially during the production and logistic process. The watermelon supply chain involves one- or twotier supply chain, which comprises movement from producers, wholesalers, retailers and final users. A preliminary survey had been conducted to estimate the postharvest losses percentage along the supply chain. The total postharvest loss for watermelon in Malaysia was high at 33%, with losses at the collection centre accumulating the highest percentage (56%). This high loss needs to be addressed as it will affect the farmers’ income and lead to an increase in food waste in the agriculture sector. A study on sanitation treatment to reduce fungal infection and extend the shelf life of watermelon was conducted. Sanitation treatments consisted of dipping the watermelon fruit in water treated with 250 ppm sodium hypochlorite for 30 seconds (Treatment 1) and spraying the peduncle with 250 ppm propiconazole fungicide (Treatment 2). Unsanitized fruit was set as control (Treatment 3). Results showed that sanitized watermelon samples (dipped in sodium hypochlorite or sprayed with propiconazole) rated acceptable until four weeks of storage at the ambient temperature of 27°C. Unsanitized fruit was infected with mould and thus rated as poor. Biochemical properties were not affected by sanitation treatment. In conclusion, sanitation using 250 ppm sodium hypochlorite or 250 ppm propiconazole helps slow down the fungal infection and extends the shelf life of watermelon fruit up to four weeks. This sanitation treatment is recommended to be included in the watermelon postharvest handling procedure to maintain good quality, reduce losses and expand the market for domestic and export.

The value of backup supply for mitigating disruption risk with equity finance

Based on the policy incentives for equity financing and firms' awareness of managing supply disruption risk, this paper examines a two-tier supply chain. A large manufacturer can purchase products either from a capital-constrained unreliable supplier who has disruption risk or a reliable backup supplier with a higher cost. We investigate the value and interactive use of the backup supplier and equity financing on firms' performances. The results show both the backup supplier and equity financing alone can always benefit the manufacturer, but the unreliable supplier can become worse off. However, when the backup supplier and equity financing interact, their impact changes dramatically. Under equity financing, the backup supplier can make the unreliable supplier better, and the effect of the backup supplier on disruption risk management differs with different wholesale prices. Moreover, with a backup supplier, equity financing can benefit both the manufacturer and the unreliable supplier. Specifically, with the backup supplier, the unreliable supplier can lose all autonomy on whether or not to raise equity financing. Then, the manufacturer and unreliable supplier can achieve Pareto optimality due to ‘bidirectional free riding’. These insights provide strategic guidance for product ordering, enabling firms to manage disruption risk better and achieve high profitability.

A multi-period optimization model for medicine supply chains using modified interactive multi-objective fuzzy programming

The research on multi-period optimization using modified interactive multi-objective fuzzy programming for product complaints in pharmaceutical supply chains is new and evolving. This study proposes and develops an integrated multi-period, multi-objective medicine supply chain model in healthcare. The study considers an unknown number of drug manufacturer complaints. The business triad is a term used to describe the combination of the three objectives: time, quality, and cost. The process starts with developing a mathematical model for the business triad. A modified interactive multi-objective fuzzy programming is then proposed for the optimization of the business triad, has been proposed. The proposed method blends expert opinion and experience using fuzzy linguistic variables and a triangle membership function. A numerical example demonstrates the practical application of the proposed model. This study considers a model for fuzzy inventory pharmaceutical products with a two-tier supply chain. This supply chain model aids healthcare decision-makers in acquiring medications that meet the necessary time, quality, and cost standards.

Supplier versus platform bundling: Optimal strategies under agency selling

This study explores the bundling decisions in a two-tier supply chain with an upstream supplier and a downstream platform and discusses the consequential implications of bundling on profit distribution between the supplier and the platform. We reveal how the supplier’s marginal cost and the platform’s commission rate determine bundling strategies when they are initiated at the upstream and downstream stages. When the marginal cost is moderate and the commission rate is high, both the supplier and the platform are incentivized to adopt bundling in order to optimize per-unit margins and overall channel demand. However, a high (resp. low or high) marginal cost and a low (resp. high) commission rate prompt only the supplier (resp. platform) to bundle. Furthermore, we highlight the critical role of the initiating party, i.e., supplier or platform, in profit allocation within the supply chain. Bundling, whether initiated by suppliers or platforms, invariably benefits suppliers. Interestingly, platform-initiated bundling yields greater supplier benefits by enabling higher retail prices without compromising demand. However, the platform’s gains from bundling are confined to specific cost configurations; for example, when the supplier’s cost is low, platform bundling can hurt the platform due to the discounted prices to counter the supplier’s high-pricing strategy. Furthermore, we find that both supplier- and platform-initiated bundling often increases the total supply chain profit, especially when the total supplier’s cost is relatively high.

Emergency order response strategy under supply chain collaboration

This paper studies the production and ordering response strategy with uncertain demand in two-tier supply chain composed of a social planner and a manufacturer. In light of the uncertain market demand, the manufacturer needs advance production before receiving the regular order from social planner to make quick response, and reserve some additional production capacity in case of emergency orders. We derive the conditions whereby the manufacturer can benefit from the emergency production and emergency orders and the social planner is willing to place the emergency orders and upgrade the optimal decisions with Pareto improvement. Besides, we find that, (1) the unit cost for emergency order is either too high or low, which might be worse off if the emergency order opportunity is provided to social planner; (2) even if the centralized case is better than the decentralized case in terms of the total cost, the social planner prefers decentralized case to centralized case. Finally, we use the real data to prove the theoretical analysis and show that the emergency supply mechanism can almost meet domestic demand. At the same time, we determine the optimal unit cost for emergency order based on total cost and respective costs for both parties.

Multi-tier supply chain network design: A key towards sustainability and resilience

The inescapable need for sustainable supply chains has fascinated controversial attention, in the last two decades, due to increasing governmental regulations and societal awareness. But, facilities and their linkages, within the supply chain network, are subject to perturbations due to natural or human-made events (e.g., strikes and floods). Therefore, managers are concerned about re-engineering a supply chain network that is simultaneously sustainable and resilient. Hence, there is an inevitable need to embrace sustainability and resilience at a strategic level for the supply chain management. Motivated by this necessity, this paper presents a new panacea methodology towards a sustainable and resilient (susilient, henceforth) two-tier supply chain network design (S-2TSCND). To this end, an extended exploration regarding the relationship and completeness between sustainability and resilience, in the supply chain context, was explored and discussed. It presents a new term for “susilient” supply chain due to the strong correlation found between these two paradigms. Then, a holistic framework was developed to identify dimensions, enablers, and criteria towards susilient development. Next, a fuzzy four-objective optimization model (FFOOM) was developed to (1) solve the susilient facility location problem; (2) assign the optimal order quantities among the selected facilities considering the susilience aspect; and (3) derive a trade-off between sustainability and resilience. The susilience values of nominated facilities were quantified via a hybrid AHP-OCRA method. These values were then merged into the FFOOM to consolidate susilience performance into the strategic and tactical decisions. A set of trade-offs was then derived via the ε-constraints method. Finally, each trade-off was examined via the global criterion approach to measure its distance from the ideal solution aiming to select the final supply chain network design. The validity of the developed methodology was proved on a re-configuration of an existing real 2TSCND.

Consumer Reactions to Incidents within a Retailer’s Supply Chain: A Collective Reputations Perspective

AbstractPrior research has demonstrated that a horizontal reputation commons is shared across the breadth of an industry. However, less is known about the existence of a vertical reputation commons among supply chain members. The purpose of this consumer-centric study is to examine the spillover effect of an upstream incident in the supply chain on consumer perceptions of a retailer’s reputation and consumer repatronage intention. Specifically, this study explores two factors that may impact consumer perceptions: location of the incident within the retailer’s supply chain and the severity of the incident. Study 1 tests the spillover effect on the retailer’s reputation and repatronage intention using a two-tier supply chain and two relative extremes of severity. Study 2 examines how a retailer through messaging could dampen the spillover effect following an upstream incident. Our findings provide insight regarding when and how consumer perceptions regarding a retailer’s reputation may change following an incident in the retailer’s supply chain and how those perceptions can be influenced by effective messaging. Collectively, our results offer initial theoretical insights into the concept of a supply chain (vertical) reputation commons.

Financing the Three-Tier Supply Chain: Advance Payment vs. Blockchain-Enabled Financing Mode

Supply chain finance has shown remarkable results in alleviating the financial constraints of small and medium-sized enterprises. However, most studies have concentrated on the two-tier supply chain while ignoring the financing issues of the deep-tier supply chain. This study introduced the blockchain-enabled financing mode now utilized in the manufacturing industry and constructed a three-tier agricultural supply chain considering the farmer’s financial constraints. The main contributions of this article are (1) presenting the blockchain-enabled financing mode in the three-tier agricultural supply chain and (2) investigating supply chain decision-making in the three-tier supply chain when the tier-2 supplier is financially constrained, comparing advance payment and the blockchain-enabled financing mode. Relevant parameter estimations were realized using the data of the last ten years, and numerical analyses were conducted. The results show that when the farmer’s bank’s financing capability exceeds the acquirer’s, the farmer is motivated to select the blockchain-enabled financing mode. However, a win-win situation among the three-tier supply chain is only achievable when the transmission-fee rate falls within a particular range. In addition, if government agencies wish to promote blockchain technology by subsidizing blockchain-enabled financing, they might support the farmer in obtaining a bank loan at a cheaper interest rate. All members of the supply chain would benefit from this.

Resilient supply chain network design without lagging sustainability responsibilities

In the 21st century, global supply chains have experienced severe risks due to disruptions caused by crises and serious diseases, such as the great tsunami, SARS, and, more recently, COVID-19. Building a resilient supply chain is necessary for business survival and growth. Similarly, there is increasing regulatory and social pressure for managers to continuously design and implement sustainable supply chain networks, encompassing economic, social, and environmental components. Hence, a panacea approach is required to establish a compromise position between resiliency concerns and sustainability responsibilities. To address this, this work presents a hybrid integrated BWM-CoCoSo-multi-objective programming model (BC-MOPM) formulated to deliver a compromise between resilience and sustainability supply chain network design (RS-SCND). First, a thorough literature review analysis is conducted to explore the relationship and correlation between resilience and sustainability to develop a framework for the resiliency and sustainability criteria, in a supply chain context. Second, four objectives were formulated, including the minimisation of total cost and environmental impact and the maximisation of social and resilience paradigms. A real two-tier supply chain network is deployed to evaluate the applicability of the developed BC-MOPM. Furthermore, sensitivity analysis is conducted to establish the relative importance of the identified criteria to prove the model’s robustness. Results demonstrate the capability of the BC-MOPM in revealing trade-offs between the resiliency and sustainability aspects.

Strategy Analysis for Retailer-Leading Supply Chain under Buyback Contract with Focus Theory of Choice

This paper investigates a retailer-leading two-tier supply chain with a buyback contract under market demand uncertainty, where the retailer first announces a potential maximal order quantity and the supplier then provides a unit wholesale price to influence the retailer’s order quantity. In recent years, an increasing number of experimental studies have reported that even in repeated multi-turn games, the decisions of suppliers viewed as newsvendors deviate significantly from the expectation-maximizing options. In light of this observation, we employ the focus theory of choice to characterize suppliers’ behavioral tendencies and theoretically derive optimal unit wholesale prices based on suppliers’ focus preferences. With these results, we further explore how suppliers’ foci may influence the interactions between the retailer and the supplier. We find that when the supplier takes the positive evaluation system as the decision criterion, optimism degree and confidence level have a negative effect on the wholesale price and a positive effect on the final order quantity, and the final order quantity must be located between the most possible market demand and the upper limit of the market demand. This paper provides a behavioral perspective to analyze suppliers’ optimal responses and their influences on retailers’ decision-making. Theoretical and numerical analyses gain managerial insights for retailers to make decisions when faced with suppliers with different focus preferences.

Managing strategic inventory under retailer competition

Besides carrying the operational inventory, retailers may invest in the strategic inventory for obtaining the discount of future wholesale price, although this behavior can induce the holding cost. In this paper, we adopt a game theoretical method to check the role of strategic inventory under the retailer-to-retailer competition. The impact of strategic inventory on a two-tier supply chain model is investigated under the retailer competition. A supplier sells products to customers through two competing retailers who may choose to carry the strategic inventory in a two-period setting. The results indicate that the retailer-to-retailer competition may affect the decisions of supply chain parties about the strategic inventory and pricing as follows. First, the competition weakens the incentives of retailers in holding the strategic inventory. Second, the lower inventory holding expense would still stimulate retailers to hold the strategic inventory for more profits. Third, facing two competing and asymmetric retailers, the prisoner's dilemma and chicken game equilibrium may occur between the two retailers when the inventory holding cost is intermediate under the uniform wholesale price strategy. However, under the differentiated wholesale price strategy, the prisoner's dilemma and chicken game equilibrium can be eliminated. For similar operational styles including store styles and locations, retailers can break through the dilemma by simultaneously holding the strategic inventory, and can obtain more profits from carrying strategic inventory under differentiated wholesale price strategy. Therefore, the differentiated wholesale price strategy can promote the two retailers to cooperate with each other and can benefit all parties.

Information sharing in two-tier supply chains considering cost reduction effort and information leakage

<p style='text-indent:20px;'>This study investigates information sharing in two-tier supply chai-ns considering cost reduction effort and information leakage, with either upstream competition (system SC) or downstream competition (system RC). Results show that in system SC without information leakage, the retailer shares information with one supplier when suppliers are efficient in cost reduction, shares information with neither supplier when suppliers are inefficient in cost reduction, and shares information with two suppliers when suppliers are intermediate in cost reduction efficiency. nformation leakage won't affect the information sharing decisions of the retailer. In system RC with or without information leakage, both retailers share information with the supplier when the supplier is efficient in cost reduction and neither retailer shares information with the supplier when the supplier is inefficient in cost reduction. However, the threshold of cost reduction efficiency without information leakage is always lower than that with information leakage, which demonstrates that it is less likely for retailers to share information with information leakage. What's more, the two retailers choose the same information sharing strategies without information leakage but the opposite information sharing strategies with information leakage when the cost reduction efficiency is intermediate.</p>

Research on Inventory Simulation of Pulse Supply Chain Based on Controllable Lead Time

In the e-commerce environment, how supply chain enterprises respond to surge demands has become an urgent issue to address. This article takes into consideration the overall interests of the supply chain system, aiming to maximize the supply chain profit. By applying system dynamics theory, an in-depth analysis is conducted on a two-tier supply chain consisting of a single manufacturer and a single retailer with controllable lead times. A system dynamics model is constructed using Vensim simulation software as the modeling platform, and simulation analyses are performed for both single and multiple surge demands. The findings reveal that in both single and multiple surge demand scenarios, implementing a controllable retailer lead time strategy leads to higher profits compared to normal lead time and random lead time strategies. Moreover, as the lead time is compressed, the profit exhibits an increasing-to-decreasing trend. Additionally, when both the manufacturer and retailer lead times are controllable, the profit of the entire supply chain surpasses that of the normal lead time and random lead time strategies.