Two-tier Supply Chain Research Articles

Strategic technology commercialization in the supply chain under network effects

We explore the optimal technology commercialization strategy of an inside innovator in the downstream of a two-tier supply chain when network effects exist via a game-theoretical framework. This setting incorporates in a unified model the two strategic incentives for the innovator to license to potential competitors for free, i.e., expanding the network size and driving down the wholesale price, thus it enables us to disclose how these two incentives interact with each other to influence the innovator's choice between the internal and external commercialization strategies. Our analyses reveal several interesting results. First, it is beneficial for the innovator to license to the entrant, even for free, when the relative quality of the low-end product provided by the latter is moderate. Second, when the network effects are weak and the quality of the low-end product to introduce is high, the innovator prefers the internal commercialization strategies, while the supplier and the consumers prefer the external commercialization strategy. Third, if licensing fees can be collected, the fixed-fee licensing contract dominates the royalty licensing contract when network effects are strong, or when the entrant is relatively weak. In addition, in the extended models, we point out that our key findings and insights are relatively robust with respect to the market structure in the upstream of the supply chain (monopolistic versus competitive) or the cost structure of the differentiated final products (homogeneous or heterogeneous), but they are somewhat different under alternative wholesale price mechanisms (uniform versus discriminatory).

Channel coordination between manufacturers and competing retailers with fairness concerns

This study provides a game-theoretic analysis for channel coordination of a two-tier supply chain in which retailers have fairness concerns. We explore a setting in which a single manufacturer sells its product to consumers through two competing retailers that are horizontally differentiated at varying levels. We extend the previous literature, which examines only monopolistic supply chains.We show that the channel can be successfully coordinated in equilibrium in that the total channel profit is maximized and the retailers do not incur disutility due to disadvantageous inequality, even if they are not averse to their advantageous inequality. Specifically, only if the retailers are moderately differentiated is a fair channel successfully achieved. In addition, we find that in a market in which a fair channel is coordinated in equilibrium, the retailers necessarily benefit from their fairness concerns.Furthermore, we investigate a situation in which the ideal distribution ratios between the channel members can be endogenously chosen prior to subsequent pricing stages. Interestingly, even if such endogenous choices are allowed for the retailers, a fair channel still can be coordinated in equilibrium. Specifically, the retailers set their ideal ratios in equilibrium at the lowest level in their feasible ranges of successful coordination. However, this results in the prisoner’s dilemma, because if they were allowed to collude to set the ratios, the retailers would benefit the most from the highest level in the feasible ranges.

Personality information sharing in supply chain systems for innovative products in the circular economy era

This research explores the value of personality information sharing in a two-tier supply chain of innovative products that have a short life cycle and no pollution to the environment. We analyse the behaviour of supply chain participants with one-shot decision theory and present an analysis of wholesale pricing for these products. We introduce the retailer's personality information sharing into our models and show the importance of personality information sharing in the wholesale price contract of the supply chain system. Theoretical analysis gains managerial insights into the strategic selection of the manufacturer when facing retailers with different personalities.

Monopoly or competition: strategic analysis of a retailing technology service provision

To improve the consumer shopping experience and to remain competitive, an increasing number of retailers continue to increase their investment in technology services and actively seek help from technology service providers to transform and upgrade their retail business. Technology service providers deliver new technological solutions for retailers by providing professional retailing technology services (e.g., building omnichannel retailing modes). Considering this context, we seek to understand whether retailers expect to use technology services and service providers’ expectations of providing retailing services. In this paper, we build a two-tier supply chain with one upstream technology service provider and one downstream retailer (or two competitive retailers) to analyse the strategic choice of the retailer(s) and the service provider. We find that the retailer(s) can purchase a professional retailing technology from the technology service provider and that the service provider is willing to provide technology to two competing retailers, which can increase market demand and yield higher profits. Furthermore, we find the impact of the technological contribution level, retail competition intensity, the power structure, and the technology marketing effect on decision outcomes is significant. Therefore, retailers should consider the influence of these factors when service providers deliver a retailing technology service.

Blockchain Collaboration with Competing Firms in a Shared Supply Chain: Benefits and Challenges

Field research has shown that companies are investing in blockchain technology for their supply chains in order to benefit from enhanced visibility, but face challenges in creating partnerships with other firms in their supply chain, some of whom could be competitors, under uncertainty about where the cost and benefit of blockchain enabled network visibility will fall. On the one hand, visibility over actions of supply chain partners can improve operational decisions, but on the other hand, sharing own data on a blockchain creates opposing forces. In this paper, we investigate these questions theoretically by studying the impact of network visibility in a specific two-tier supply chain setting that consists of an upstream supplier and two competing downstream manufacturers. The supplier’s capacity is limited so that the manufacturers compete on both the supply side and the demand side. Network visibility enables the manufacturers to know each other’s existence. By comparing the cases with and without network visibility, we study how the network visibility affects the supplier, the manufacturers, and the entire supply chain. We find that the manufacturers can benefit from network visibility when the supplier’s capacity is sufficiently small or sufficiently large, but the underlying reasons are different. When the supplier is highly capacitated, network visibility creates value to the manufacturers by mitigating their over-order incentive. When the supplier’s capacity is sufficient, network visibility creates value to the manufacturers by mitigating their under-order incentive. Moreover, network visibility can help improve the supplier’s profit when her capacity is not too small because in this case, the supplier can sell more with network visibility. Finally, from the perspective of the entire supply chain, we find that network visibility can help alleviate double marginalization and improve the total supply chain profit if and only if the supplier’s capacity is sufficiently large. Furthermore, as long as network visibility is beneficial to the entire supply chain, it is also beneficial to both the supplier and the manufacturers at the same time, hence blockchain can be naturally initiated by any firm in the supply chain network. Our model particularly addresses the question whether competing firms would join a shared blockchain.

A Study and Comparison of Shipment Policies with Repair Options in a Two-Tier Supply Chain Model

Vendors often sell their products to buyers far away. Frequently, a few products in the lot are found to be imperfect, but because of the distance to the vendor, it is not cost-effective for the buyer to place another order to replace the imperfect products with good ones. These imperfect products are still valuable and can be repaired, so the buyer has them repaired at a nearby shop and restores them to the inventory. The buyer pays a repair charge plus a markup margin. A two-tier supply chain problem will be studied in this paper under the EOQ (Economic Order Quantity) model, considering the issues of a single buyer and a single vendor and aiming to minimize the total costs for both entities. Based on three supply-chain structures, this paper presents three models, providing engineering managers with guidelines for the selection of a cost-effective supply chain inventory system through analysis of different shipment policies. The shipment policies used for these models were, first, equal-sized, then geometric, and finally, geometric-then-equal-sized. The total expected cost per unit time under each policy is calculated and a proposal is developed for the solution procedure. The paper then proceeds to make a comparative analysis of the three shipment policies in the context of the two-tier supply chain problem. A discussion of the results is illustrated by a numerical example.

New Approaches in Meta-heuristics to Schedule Purposeful Inspections of Workshops in Manufacturing Supply Chains

Nowadays, with the growth of technology and the industrialization of societies, work-related accidents, and consequently the threat of human capital and material resources are among the problems of the countries of the world. The most important legal solution in most countries to control occupational accidents and illnesses is to conduct periodic site visits and identify hazardous sites. To the best of our knowledge, no study from the supply chain point of view has been reported to model and address this kind of problem. Thus, this paper is to select the best route that reduces the time elapsed between the workshops and the visit time of the inspectors by using two-tier supply chain simulation coupled with the vehicle routing problem (VRP) to give them more opportunity to visit more workshops. In this study, by considering the number of workshops, the limitation of the number of the existing inspectors and the priority of inspecting the workshops, a bi-objective mathematical model is presented. The main aims are to maximize the number of visited workshops and minimize travel times and workshops visit times. In this study, three meta-heuristics (i.e., SA, SEO and RDA) and two hybrid algorithms are used to address the model. Then, the quality of the meta-heuristics and hybrid algorithms are evaluated and compared by using four metrics. The SEO algorithm provides the best performance; however, in a long time, the hybrid GASA algorithm provides the worst performance. Finally, a real-case study is used to validate the presented model.

Resilience to Supply Disruptions in a Non-Linear Two-Tier Supply Chain Model

This article describes using a nonlinear APVIOBPCS to model the resilience response to the failure of one of the suppliers of a two-tier supply chain comprising a retailer and two suppliers. The second supplier then supplies all the goods required by the retailer. The model is chosen as the simplest case to examine resilience. Time to recover from disruption to ship all goods required by customers is slightly worse when the order rate when it reaches capacity limits but is less than the delay in the system from supplier to final shipment. Just over one weeks' maximum shipments stock at each tier guarantees shipments impervious to the collapse of one supplier, controller type has little effect on the performance of the model. These results agree with other researchers in general trend but not in detail. The response does not match the ‘Resilience Triangle.'

Optimal Innovation Investment: The Role of Subsidy Schemes and Supply Chain Channel Power Structure

We investigate the impact of government subsidy schemes and channel power structure on the level of innovation in a two-tier supply chain. Our results indicate that consumer subsidies are more effective than producer subsidies in promoting innovation investment for a given channel power structure. Regardless of the power structure, supply chain members, consumers and society benefit more from consumer subsidies. If government subsidies are absent, innovation investment is higher when neither member of the supply chain dominates, and consumer surplus and social welfare are also higher in the Nash game. Under the consumer subsidy scheme, although government expenditures are higher in the manufacturer-led game, innovation investment is the same under different power structures, and consumer surplus and social welfare are also, in turn, the same. Under the producer subsidy scheme, the manufacturer invests more in innovation, and government expenditure is also higher when the retailer dominates the supply chain. Under producer subsidies, consumers and society benefit from the presence of powerful retailers when the investment cost is lower, and consumer surplus and social welfare have an inverted U-shaped relationship with the retailer’s power otherwise.

Simulation of multi-agent interaction in the system “labor exchange - enterprise”

The work simulates a game with full information with two agents in the supply chain: one labor exchange - one enterprise. The strategy of the enterprise is the demand for labor resources. The labor exchange strategy is the party of labor resources. The company provides the labor exchange with information on the demand for workers, the labor exchange decides on the procurement and delivery of batches of workers. Labor resources as stocks are managed by the labor exchange. Thus, the model proposed in the work obeys the VMI (Vendor Managed Inventory) concept and is a model of cooperation between the labor exchange and the enterprise. A multi-product EOQ (Economic Order Quantity) model for a two-tier supply chain is proposed. The task is to minimize the value of the supply chain of labor resources, in which the optimization variable is the maximum level of labor shortages. The task takes into account the shortage of labor resources, monetary fines for the deficit, restrictions on the space of the labor exchange and the number of orders.

Vendor managed inventory with fixed shipping cost allocation

ABSTRACT This paper examines the effectiveness of a vendor-managed inventory (VMI) system in a decentralised supply chain. Specifically, a two-tier supply chain with one vendor and multiple buyers is analysed under two replenishment models – an LMI system and a VMI system with vendor coordination that includes retailer incentives and cross-docking at the vendor. The impact of supply chain design parameters (number of retailers and retailer heterogeneity), and a policy parameter (shipment frequency) on the effectiveness of the VMI system is studied. Using an analytical model as well as numerical experiments, we find that incentive-aligned contractual arrangements can be made between the vendor and the retailers through reallocation of fixed shipping cost savings arising from VMI.

An optimal policy for three-tier supply chain for processing an agricultural product with a stochastic demand

Agricultural products are very common in our daily life. A few works limited to a two-tier supply chain (SC) of these products, have been carried out by controlling their management cost. This study develops a threetier SC model of processing an agricultural product with a stochastic demand, consisting of a single seasonal supplier, a single manufacturer and multiple retailers. A safety stock is maintained to meet extra demand. The objective is to identify the number of shipments and the shipment sizes in a cycle to be delivered to the manufacturer and the retailers in order to minimise the chain-wide cost. We develop two optimal solution methods to the model. These methods and the parallel multiple jumps technique used to find integer solutions are summarised in an algorithm to obtain global optimal solutions to the concerned problems. Managerial insight of this model is highlighted with a numerical illustration.

Combating Child Labor: Incentives and Information Disclosure in Global Supply Chains

Problem definition: We investigate multinational firms’ inspection and pricing strategies to address the challenges of combating child labor in global supply chains. We also examine how several factors (such as information disclosure, goodwill loss, inspection cost, external monitoring by nongovernmental organizations (NGOs), and penalty scheme) affect firms’ incentives to use different strategies to combat child labor. Academic/practical relevance: Nearly 200 million children are engaged in child labor, many in developing countries that are part of the supply base of global manufacturing networks. However, there has been little research on evaluating the impact of firms’ strategies and NGOs’ initiatives on child labor. Methodology: We develop a game-theoretic model based on a two-tier supply chain, in which a multinational firm in a developed country sells the product made by a supplier in a developing country. Results: If internal inspections are economical, a global firm can reduce the incidence of child labor by inspecting the supplier’s use of child labor. Otherwise, the firm can deter the supplier’s child labor employment by offering a sufficiently high wholesale price or simultaneously using internal inspections and a medium wholesale price. The latter strategy should be adopted only when information about the firm’s inspection policy can be informed credibly. This strategy combats child labor more effectively when a higher penalty is levied onto the supplier’s use of child labor. Managerial implications: A multinational firm that adopts a zero-tolerance policy should consider disclosing its effort to combat child labor (e.g., through a social responsibility report), whereas it should take extra caution when using other penalty schemes. NGOs should help raise the firm’s goodwill cost (e.g., through campaigns and consumer education), but they should be careful about helping to reduce the firm’s inspection cost (e.g., by improving a monitoring system). To prevent children from going back to work after initial removal, a sufficient amount of compensation should be provided to those children, especially when firms rely on inspections without paying a high wholesale price to suppliers.

A vendor–buyer distribution channel with coordination mechanisms under inventory dependent demand

ABSTRACTAs confirmed by marketing studies, customer demand sometimes increases with the amount of inventory available, depending on the nature of goods. This paper analyzes a two-tier supply chain under such inventory-dependent demand (IDD). The analysis of the paper for the supply chain is in two modes, as a vendor-leading Stackelberg game and as its integrated counterpart, followed by the profit-sharing or the holding cost-sharing mechanism to further improve the vendor’s profit from the vendor-leading mode. The analysis procedure is complicated by non-zero fixed costs in the system such that the profit functions are non-concave. The analysis is complete such that the optimal quantities and their sensitivities, the optimal ordering quantities, the optimal wholesale prices, etc., are given under IDD. The tradeoff between the profit-sharing and the holding cost-sharing mechanisms are given under the influence of the zero and non-zero fixed costs in the system.

Longitudinal cooperative robust optimization model for sustainable supply chain management

This paper considers the trade-offs of two-tier supply chain enterprises in an uncertain environment, and can be formulated into a two-tiered multi-programming formula. The model we proposed considers green building alternatives’ cost, duration and carbon emissions uncertainties simultaneously, making it more realistic comparing to models in previous literature. In this model, the interval number and expected value based on Me are adopted to handle the uncertain coefficients contained in the objective function and constraints, then a stochastic-based robust optimization method is developed to get a solution that can resist the uncertain environment. To solve the complex and non-linear bi-level multi-follower model, an interactive fuzzy programming technique combined an effective multi-objective algorithm, NSGA-II, is designed as the solution method. Finally, an applicant for a contractor of Urban Construction Group and its sub-contractors is given as an illustration that demonstrates the practicality and efficiency of the proposed model. The sensitivity analysis towards the change of important parameters is also provided.

Competition in two-tier serial and assembly supply chains with general consumer utility functions

We consider two-tier serial supply chains with multiple entrants at each tier and investigate the existence of an equilibrium under a general consumer utility function corresponding to a general inverse price-demand function. In the case of a polynomial inverse price-demand function, we obtain closed-form expressions for the equilibrium prices, the production quantities and the profits of the supply chain entrants. We conclude that the quantity of finished goods supplied to the market, the maximum total operating profit accrued by all supply chain entrants, and the elasticity of the (imputed) demand are all sensitive to the elasticity of slope of the polynomial inverse price-demand function. We then extend our analysis to two-tier assembly supply chains and conclude that most of our results extend to them as well.

Contracts and Capacity Investment in Supply Chains

Suppliers are often reluctant to invest in capacity if they believe that they will be unable to recover their investment costs in subsequent transactions with buyers. In theory, a number of different contracts can solve this issue and induce first-best investment levels by the supplier. In this study, we investigate the performance of these contracts in a two-tier supply chain. We develop an experimental design where retailers and suppliers bargain over contract terms—and have the ability to make multiple back-and-forth offers—while also providing feedback on the offers they receive. One key result from our study is that an option contract and a service-level agreement are best at increasing first-best investment levels and overall supply chain profits. However, these same contracts also generate the largest inequity in expected profits between the two parties. We find that both of these results are driven by the bargaining tendencies of retailers and suppliers, which we refer to as “superficial fairness.” In particular, retailers and suppliers place more emphasis on negotiating the wholesale price, while partially overlooking any secondary parameter, such that final wholesale prices end up roughly halfway between the retailer’s selling price and the supplier’s production cost. We show that this bargaining behavior contributes to higher investment levels observed in the option contract and service-level agreement, along with the inequitable payoffs.The online appendix is available at https://doi.org/10.1287/msom.2017.0654 .

Internal and external reference effects in a two-tier supply chain

We study a two-tier supply chain with a newsvendor retailer that has an internal reference effect related to its own profit as well as an external reference effect centered on the profit of the supplier. We show that the internal and external reference effects in isolation can have opposite effects on the wholesale price set by a supplier who has full knowledge on the retailer’s ordering bias. The internal reference effect, which is driven by the relative disutility from ex-post inventory error, causes the supplier to increase the wholesale price, whereas the external effect, which results from disadvantageous profit inequity, causes the supplier to decrease the wholesale price. While the internal reference effect can achieve supply chain coordination for items with a low profit margin, the external reference effect improves efficiency for high profit margin products, but never achieves coordination. When the retailer’s ordering behavior is influenced by both reference effects, then the interaction can improve efficiency and lead to an equilibrium where the supply chain is coordinated. We find that the relative impact of each reference effect is highly dependent upon the profit margin. We study these equilibria with full information as well as for a supplier who is naïve to the retailer’s behavioral biases and compare these results to derive insights into the behavioral management of supply chains.

Innovation and Technology Diffusion in Competitive Supply Chains

Innovations in consumer products frequently rely on technological advances across multiple tiers in a supply chain. Considering the consumer market demand and downstream investment conditions as input, we model a game in a two-tier supply chain where downstream firms choose to adopt different levels of an upstream technology and an upstream technology leader determines its pricing policy. We identify two necessary but distinct elements for the successful development, adoption, and diffusion of upstream technologies that are sold to lower tiers as components within final products. (1) The level of technology demanded by the market: We develop a measure, Technological Potential, which describes the highest level of an upstream technology demanded by consumer markets. (2) A sufficiently rich return to an upstream innovator, as a function of different levels of technology. From these two elements, we show that the relative magnitudes of two competing sets of consumer market factors determine the Technological Potential whereas the overall magnitude of the factors in both sets determines the return to the upstream developer. We discuss how this difference in consumer market factors' influence on these two elements may determine how different technologies fare in the supply chain. Our results have managerial implications for: investors in research and development project selection in identifying profitable technologies that are also demanded at higher capability levels; and for governments in defining more targeted public policies - for example in choosing the right tier of a supply chain to provide subsidies - to encourage market support for certain technologies.

Innovation and technology diffusion in competitive supply chains

Innovations in consumer products frequently rely on technological advances across multiple tiers in a supply chain. Considering the consumer market demand and downstream investment conditions as input, we model a game in a two-tier supply chain where downstream firms choose to adopt different levels of an upstream technology and an upstream technology leader determines its pricing policy. We identify two necessary but distinct elements for the successful development, adoption, and diffusion of upstream technologies that are sold to lower tiers as components within final products. (1) The level of technology demanded by the market: We develop a measure, Technological Potential, which describes the highest level of an upstream technology demanded by consumer markets. (2) A sufficiently rich return to an upstream innovator, as a function of different levels of technology. From these two elements, we show that the relative magnitudes of two competing sets of consumer market factors determine the Technological Potential whereas the overall magnitude of the factors in both sets determines the return to the upstream developer. We discuss how this difference in consumer market factors’ influence on these two elements may determine how different technologies fare in the supply chain. Our results have managerial implications for: investors in research and development project selection in identifying profitable technologies that are also demanded at higher capability levels; and for governments in defining more targeted public policies – for example in choosing the right tier of a supply chain to provide subsidies – to encourage market support for certain technologies.