Two-tier Supply Chain Research Articles

Improving corporate social responsibility in a supply chain through a new revenue sharing contract

Due to the social and environmental impacts of industrial activities in supply chains, corporate social responsibility (CSR) has become critical for many international companies. This paper aims to integrate CSR into supply chain coordination. A new revenue sharing contract embedding corporate social responsibility (RS-CSR) is proposed for coordinating a two-tier supply chain. The RS-CSR contract requires that the manufacturer invest in CSR and charge the retailer a wholesale price. After the retailer sells products, it will return a ratio of its revenue to the manufacturer. A mathematical model is proposed to determine the optimal CSR investment, the wholesale price, and the revenue sharing ratio such that channel coordination is achieved. Two different objectives of the supply chain are discussed: profit maximizing and CSR performance maximizing. Numerical examples show that the RS-CSR contract can simultaneously achieve the following objectives under proper parameter settings: (1) improve CSR performance; (2) improve total supply chain profits; (3) ensure that each partner in the supply chain can benefit from the contract. The RS-CSR contract can be designed to achieve different level of CSR performance, subject to corporate culture of the SC and how the SC expects its profits and CSR performance. This study also provides theoretical support and operational procedures for SC managers to integrate CSR into business routines.

Two-tier equilibria for supply chains with a single manufacturer and multiple asymmetric retailers

We derive sufficient conditions for the existence and uniqueness of the Stackelberg–Nash–Cournot equilibria for a supply chain problem with a single manufacturer and multiple asymmetric retailers and characterize the first and second order derivatives of the total equilibrium quantities. The Stackelberg manufacturer is assumed to supply a homogeneous product to all retailers with the retail price determined by a general nonlinear inverse demand function. We provide several extensions of our previous results [G.J. Kyparisis, C. Koulamas, A note on equilibria for two-tier supply chains with a single manufacturer and multiple retailers, Operations Research Letters 39 (2011) 471–474] obtained for a similar supply chain with symmetric retailers.

Stability issues in supply chain networks: Implications for coordination mechanisms

Abstract Stability is essential for long term sustainability of supply chain networks. The literature on supply chain coordination focuses on enhancing network efficiency, and stability issues are largely unexplored. In this paper, we consider a two-tier supply chain network with a marketing agent coordinating activities among the network players using a price and profit sharing based coordination mechanism. Our non-cooperative game theoretic model shows that a unique subgame perfect Nash equilibrium exists that facilitates development of structural results characterizing network stability from the perspectives of costs, number of players and parameters of the coordination mechanism. In particular, we obtain ranges for cost, number of players and the profit sharing parameter over which the network is internally and/or externally stable. Our results suggest that cooperation among the network players is not always necessary; network efficiency can be achieved in some situations with the coordination mechanism adopted here.

A Tale of Two Countries: Trust and Trustworthiness in China and the U.S.

Whether and how trust and trustworthiness differ between a collectivist society, e.g., China, and an individualistic one, e.g., the U.S., generate much ongoing scientific debate and bear significant practical values for managing cross-country transactions. We experimentally investigate how supply chain members' countries of origin -- China versus the U.S. -- affect trust, trustworthiness, and strategic information sharing behavior in a cross-country supply chain. We consider a two-tier supply chain in which the upstream supplier solicits demand forecast information from the retailer to plan production; but the retailer has an incentive to manipulate her forecast to ensure abundant supply. The levels of trust and trustworthiness in the supply chain and supplier's capability to determine the optimal production quantity affect the efficacy of forecast sharing and the resulting profits. We develop an experimental design to disentangle these three aspects and to allow for real-time interactions between geographically distant and culturally heterogeneous participants. We observe that, when there is no prospect for long-term interactions, our Chinese participants consistently exhibit lower spontaneous trust and trustworthiness than their U.S. counterparts do. We quantify the differences in trust and trustworthiness between the two countries, and the resulting impact on supply chain efficiency. We also show that Chinese individuals exhibit higher spontaneous trust towards U.S. partners than Chinese ones, primarily because they perceive that individuals from the U.S. are more trusting and trustworthy in general. This positive perception towards U.S. people is indeed consistent with the U.S. participants' behavior in forecast sharing. In addition, we quantify that a Chinese supply chain enjoys a larger efficiency gain from repeated interactions than a U.S. one does, as the prospect of building a long-term relationship successfully sustains trust and trustworthiness by Chinese partners. We advocate that companies can reinforce the positive perception of Westerners held by the Chinese population and commit to long-term relationships to encourage trust by Chinese partners. Finally, we also demonstrate that both populations exhibit similar pull-to-center bias when solving a decision problem under uncertainty (i.e., the newsvendor problem).

A note on equilibria for two-tier supply chains with a single manufacturer and multiple retailers

A well-studied problem in the supply chain management literature considers a two-tier supply chain for a homogeneous product with a single manufacturer, multiple retailers and a general inverse demand function. The problem has been analyzed in the literature without a formal mathematical treatment of the existence/uniqueness of equilibria. Furthermore, the existence/uniqueness results derived for related models are not extendable to our model. The objective of this paper is to derive sufficient conditions for the existence/uniqueness of Stackelberg–Nash–Cournot equilibria for the two-tier problem.

The Effect of Inventory Risk on Supply Chain Performance

In this analysis we experimentally investigate how altering the inventory risk in a two-tier supply chain affects both the total supply chain profits and the distribution of profits between the two parties. We evaluate three wholesale-price contracts, each differing in which party incurs the risk associated with unsold inventory; a Push contract where the retailer incurs the risk, a Pull contract where the supplier incurs the risk, and an Advance-Purchase Discount (APD) contract where both parties share the risk. Our primary results are that total supply chain profits increase when switching from the Push contract to the Pull contract, as theory suggests, but that there is no improvement in supply chain profits when moving from the Pull contract to the APD contract. We also find that, contrary to standard theory, the APD contract is superior to the Push contract in terms of both retailer and supplier profits, suggesting that a Push contract should never be considered when an APD contract is a possibility.

Transparency of Information Acquisition in a Supply Chain

A firm hires a consultant to acquire demand information. The outcome of information acquisition may turn out to be successful such that the firm becomes informed of the market demand, or unsuccessful such that it remains uninformed. After the outcome becomes clear, the firm learns its information status, “informed” or “uninformed”, and the information content if it is informed. The client firm usually requires strict confidentiality that forbids the consultant to make any disclosure about the information acquisition, believing that greater informational advantage will surely be to its own benefits. As a result neither the information content nor the information status is known to any third party. But should the firm always care so much about strict confidentiality? Will it be beneficial if the firm’s information status, but not the information content, is known to its partners or any other firms? We investigate this issue in the context of a two-tier supply chain. A manufacturer offers a menu of contracts for supplying a product to a retailer who sells it in a market with random demand that has a known continuous distribution. The retailer hires a consultant to acquire demand information, with uncertain outcome. With probability t

Contract Complexity and Performance Under Asymmetric Demand Information: An Experimental Evaluation

Exploring the tension between theory and practice regarding complexity and performance in contract design is especially relevant. The goal of this paper is to understand why simpler contracts may commonly be preferred in practice despite being theoretically suboptimal. We study a two-tier supply chain with a single supplier and a single buyer to characterize the impact of contract complexity and asymmetric information on performance and to compare theoretical predictions to actual behavior in human subject experiments. In the experiments, the computerized buyer faces a newsvendor setting and has better information on end-consumer demand than the human supplier. The supplier offers either a quantity discount contract (with two or three price blocks) or a price-only contract, contracts that are commonplace in practice, yet different in complexity. Results show that, contrary to theoretical predictions, quantity discounts do not necessarily increase the supplier's profits. We also observe a more equitable distribution of profits between the supplier and the buyer than what theory predicts. These observations can be described with three decision biases (the probabilistic choice bias, the reinforcement bias, and the memory bias) and can be modeled using the experience-weighted attraction learning model. Our results demonstrate that simpler contracts, such as a price-only contract or a quantity discount contract with a low number of price blocks, are sufficient for a supplier designing contracts under asymmetric demand information.This paper was accepted by Christian Terwiesch, operations and supply chain management.

Negotiation-based Order Lot-Sizing Approach for Two-tier Supply Chain

This paper focuses on a negotiation based collaborative planning process for the determination of order lot-size over multi-period planning, and confined to a two-tier supply chain scenario. The aim is to study how negotiation based planning processes would be used to refine locally preferred ordering patterns, which would consequently affect the overall performance of the supply chain in terms of costs and service level. Minimal information exchanges in the form of mathematical models are suggested to represent the local preferences and used to support the negotiation processes.

The single-period inventory problem: Extension to random yield from the perspective of the supply chain

A special form of the single-period inventory problem (newsvendor problem) with a known demand and stochastic supply (yield) is studied. A general analytic solution for two types of yield risks, additive and multiplicative, is described. Numerical examples demonstrate the solutions for special cases of uniform distribution yield risks. An analysis of a two-tier supply chain of customer and producer reveals that the customer may find it optimal to order more than is needed, since a larger order increases the producer's optimal production quantity.

A model of market power and efficiency in private electronic exchanges

We investigate how private electronic markets (PEMs) can be used as a strategic tool by a large producer to compete against a consortium of smaller producers. We model the competition between a Large Producer and Consortium of producers in a two-tier supply chain as a game and characterize the resulting Subgame Perfect Nash Equilibrium. Our results demonstrate that as the costs of inputs to production increase, there are greater returns to ownership of a private exchange. Further, we demonstrate strong welfare enhancing effects of the PEM as the production efficiency of upstream suppliers declines. Finally, from a policy standpoint we show that when upstream suppliers are highly efficient, the creation of a private electronic exchange by the Large Producer will result in significant welfare loss.

Negotiation-based collaborative planning in divergent two-tier supply chains

Advanced Planning Systems are based on the principles of hierarchical planning, which—at least at the top level—grounds on centralized planning. However, central coordination requires access to all relevant information and the power to impose planning results on all organizational units. In consequence it can be realized only for parts of an inter-organizational supply chain, and the question arises whether there exist alternate ways to achieve coordination. In this paper we describe a non-hierarchical, negotiation-based process, which can be used to synchronize plans between independent partners of a two-tier supply chain consisting of one supplier and several buyers. Assuming that all partners generate plans based upon mathematical programming—as in most Advanced Planning Systems at the master planning level—we show how modified versions of these models can be utilized to support the negotiation process by evaluating given purchasing orders or supplies and by generating counter-proposals. Resulting is an iterative, negotiation-like scheme, which establishes and subsequently improves a consistent overall plan based on a limited exchange of information between the supply chain partners.

Reducing the bullwhip effect in supply chains with control-based forecasting

The bullwhip effect in supply chains occurs when the variance in the demand forecast magnifies itself as it moves through the supply chain from the distributors to the material suppliers. It is understood that demand forecast variance contributes to the bullwhip effect in the supply chain. With this understanding, the authors experimented with a forecasting technique called control-based forecasting to see if the implementation of control-based forecasting could reduce the bullwhip effect. Through the use of a simulation, the authors show that using control-based forecasting techniques can drastically reduce the bullwhip effect, and thus the demand variance and production variance, for all of the participants in a supply chain. The authors also show that, in a simple two-tier supply chain, the cause of the bullwhip effect in supply chains is not related to demand variance, lead-time variance or inventory policy. It is because the demand forecast is constantly changing, which causes changes in inventory policy and order quantities.

Strategic commitment versus postponement in a two-tier supply chain

In this paper the trade-off between strategic commitment and operational flexibility is examined as it arises in a supply chain when a supplier offers competing buyers opportunities to make early purchase commitments for a product with a short life cycle. Traditionally, the use of incentives for early purchase commitments for short life-cycle products has been justified on the basis of a supplier's production lead times or capacity constraints. An alternative explanation has been proposed by offering early purchasing opportunities, a supplier can influence the form of competition in the downstream market. Using a single period model, it has been shown that, below a threshold level of demand uncertainty, the supplier can benefit from providing adequate pricing incentives to entice downstream buyers to commit to purchase quantities before demand information is revealed. Moreover, such early purchasing opportunities can benefit the supplier as well as the buyers even in the absence of production lead times or capacity constraints.