Upstream Manufacturer Research Articles

The Implications of Visibility on the Use of Strategic Inventory in a Supply Chain

It is now widely accepted that a retailer’s use of strategic inventory can mitigate double marginalization and improve the coordination of a supply chain, potentially benefiting both the downstream retailer and an upstream manufacturer. However, this conclusion has typically been based on the assumption that the manufacturer can observe the retailer’s level of inventory before making wholesale pricing decisions. In reality, there are many situations in which neither the retailer’s sales nor inventory are observable to the manufacturer, effectively concealing the action taken by the retailer. We investigate the implications of such a lack of observability on the use of strategic inventory in a supply chain consisting of a single retailer and a single manufacturer. We find that the manufacturer’s inability to observe inventory has significant implications for the amount of inventory and the range of holding cost for which it is held in equilibrium. In addition, we find that, in the absence of any form of uncertainty, which the manufacturer could benefit from responding to, he may prefer not to observe the retailer’s inventory. On the other hand, the retailer’s willingness to make her inventory visible depends on the holding cost. The electronic companion is available at https://doi.org/10.1287/mnsc.2018.3033 . This paper was accepted by Gad Allon, operations management.

Expanding Distribution Channels

We provide a model in which upstream producers, whose production cost is quadratic in quantity, sell their products through two distribution channels, a traditional channel and an external retailer. Some producers (called large producers) supply to both channels, whereas other producers (called producers) are only able to supply to the traditional channel. All producers compete in quantity in the traditional channel. The external retailer offers a nondiscriminatory per unit payment to upstream producers. We show that distribution channel expansion executed by a small producer can decrease the producer's profit and the sum of the upstream producers' profits.

Expanding distribution channels

I provide a model in which upstream producers, whose production cost is quadratic in quantity, sell their products through two distribution channels, a traditional channel and an external retailer. Some producers (called ‘large’ producers) supply to both channels, whereas other producers (called ‘small’ producers) are only able to supply to the traditional channel. All producers compete in quantity in the traditional channel. The external retailer offers a nondiscriminatory per unit payment to upstream producers. I show that distribution channel expansion executed by a small producer can decrease the producer’s profit and the sum of the upstream producers’ profits.

Multiple customer order decoupling points within a hybrid MTS/MTO manufacturing supply chain with uncertain demands in two consecutive echelons

For decades, manufacturers have dealt with uncertain demands, and many solutions—such as manufacturing semi-finished products–have been presented to help manage the uncertainties. This paper considers the demand uncertainties in two echelons of a supply chain, unlike most of the field research, which has focused on the final customers’ demand uncertainty. In order to decrease the operating costs of a manufacturer, a model is proposed to use hybrid manufacturing in two levels of a supply chain with two echelons of manufacturers. The output of the presented model is the quantity of semi-finished products ordered to the decoupling point upstream manufacturer. The number of processes that must be done based upon Make to Stock, the order quantity of the decoupling point downstream manufacturers, and the order quantity of the final customers are obtained by the presented model as well. A numerical example and a vast sensitivity analysis are presented to better show the applicability of the presented model.

Supply Chain Systems Coordination With Multiple Risk Sensitive Retail Buyers

This paper explores supply chain systems coordination challenges in the presence of multiple heterogeneous risk sensitive retail buyers using the commonly seen markdown contract under both information symmetric and asymmetric settings. For each setting, we explore two scenarios. The first scenario allows the upstream manufacturer to freely set a separate contract to each risk averse retailer, whereas the second scenario specifies that the manufacturer has to grant the same contract to each risk averse retailer under the fair trade rule. We analytically show that the markdown contract which can achieve “perfect coordination” only exists in the first scenario (without the fair trade rule) under the information symmetric setting. For all the other scenarios, we find that perfect coordination cannot be achieved by the markdown contract, and hence we develop the computational algorithms to help identify the markdown contract parameter(s) which can achieve the “best possible coordination.” In addition, we reveal that the manufacturer’s risk attitude does significantly affect the achievability of perfect coordination. The findings of this paper also provide analytical evidence to show that the fair trade rule would do more harm than good for supply chain systems optimization under simple supply contracts.

Effects of Consumer-to-Consumer Product Sharing on Distribution Channel

In recent years, mobile communications technologies and online sharing platforms have made collaborative consumption among consumers a major trend in the economy. Consumers buy many products but end up not fully utilizing them. A product owner’s self-use values can differ over time, and in a period of low self-use value, the owner may rent out her product in a product-sharing market. This paper develops an analytical framework to study how consumer-to-consumer product sharing affects the distribution channel, where the manufacturer has to build its production capacity beforehand and the retailer sells the product to forward-looking consumers. Our analysis reveals that there exists a threshold for the capacity cost coefficient, above which product sharing will increase the manufacturer’s optimal capacity and below which it will reduce the manufacturer’s optimal capacity. We find that the sharing market tends to increase the retailer’s share of the gross profit margin in the channel. Furthermore, the existence of the sharing market tends to benefit the firms when capacity is relatively costly to build, but it is more likely to increase the retailer’s profit than the manufacturer’s profit, i.e., product sharing can sometimes benefit the downstream retailer at the expense of the upstream manufacturer.

Production and pricing problems in make-to-order supply chain with cap-and-trade regulation

This paper studies the production and pricing problems in MTO (make-to-order) supply chain containing an upstream manufacturer who produces two products based on MTO production and a downstream retailer. The manufacturer is regulated by cap-and-trade regulation and determines the wholesale prices of the two products. To comply with the regulation, the manufacturer can buy or sell emission permits through an outside market. The retailer determines its order quantities to meet the price-sensitive demands. We derive the optimal total emissions and production quantities of the two products, and based on them, we analyze the impact of emission trading price on the optimal production decisions and the two firms’ optimal profits. The emission trading decisions follow a two-threshold policy and the optimal total emissions are increasing in the cap. However, contrary to intuition, the optimal production quantities of the two products may be decreasing in the cap. The manufacturer׳s optimal profit is decreasing (increasing) in the buying (selling) price of emission permits, and that the retailer׳s optimal profit is decreasing in the buying (selling) price of emission permits. The optimal total emissions are decreasing in buying or selling price of emission permits, however, the optimal production quantities of the two products may be increasing (decreasing) in the buying (selling) price of emission permits. Numerical examples are conducted to illustrate our findings and some managerial insights are presented.

Atmospheric mercury footprints of nations.

The Minamata Convention was established to protect humans and the natural environment from the adverse effects of mercury emissions. A cogent assessment of mercury emissions is required to help implement the Minamata Convention. Here, we use an environmentally extended multi-regional input-output model to calculate atmospheric mercury footprints of nations based on upstream production (meaning direct emissions from the production activities of a nation), downstream production (meaning both direct and indirect emissions caused by the production activities of a nation), and consumption (meaning both direct and indirect emissions caused by final consumption of goods and services in a nation). Results show that nations function differently within global supply chains. Developed nations usually have larger consumption-based emissions than up- and downstream production-based emissions. India, South Korea, and Taiwan have larger downstream production-based emissions than their upstream production- and consumption-based emissions. Developed nations (e.g., United States, Japan, and Germany) are in part responsible for mercury emissions of developing nations (e.g., China, India, and Indonesia). Our findings indicate that global mercury abatement should focus on multiple stages of global supply chains. We propose three initiatives for global mercury abatement, comprising the establishment of mercury control technologies of upstream producers, productivity improvement of downstream producers, and behavior optimization of final consumers.

The effects of resale-below-cost laws in the presence of a strategic manufacturer

In retail markets, below-cost (or loss-leader) pricing is an important marketing tool to attract customers. However, several countries have adopted resale-below-cost laws that ban retailers from adopting this promotion strategy. In this study, we theoretically investigate how banning below-cost pricing influences equilibrium prices, firms’ profits, and consumer surplus. We explicitly consider not only horizontal competition between retailers but also vertical channel relationships between manufacturers and retailers. In addition, we focus on asymmetric competition between dominant and weak retailers, which have heterogeneous bargaining positions vis-a-vis an upstream manufacturer. We show that this ban induces the manufacturer to reduce its wholesale price and can lead to a decrease in equilibrium retail prices including that of a loss-leader product. We also show that owing to the effects of such price reductions, the ban always improves the total consumer surplus and can benefit the weak retailer in terms of bargaining position, although it always harms the manufacturer and the dominant retailer.

Energy Efficiency Contracting in Supply Chains

There is some evidence that manufacturers refrain from investing in energy efficiency (EE) measures which improve their production process and reduce operational costs as a response to retailer's high bargaining power and the possibility of their using it to further push the prices down and seueez manufacturer's profit margin. Additionally, the uncertainty associated with new and environmental friendly EE technologies further discourages the manufacturers to adopt EE technologies. We study these problems by considering a two tier supply chain including a single manufacturer and a retailer and analyse the effect of retailer's relative bargaining power and technology uncertainty on adoption of EE technologies by the upstream manufacturer. We compare multiple contracting arrangement practiced in industry to aleviate the aformentioned problems including price commitment by the retailer and shared investment contracts, and charachterise optimal contracts with respect to different criteria, including supply chain profits and the level of EE investments. We find that shared investment contracts perform better than price commitment contracts based on the EE the level of investment and channel profit criteria, while price commitment contracts yield higher profit for the manufacturer rather than having no EE contract when retailer's bargaining power is relatively high. Furthermore, when the technology uncertainty is high, the retailer's profit is higher when there is no EE contract

The Supply Chain Contract Design under Cap-and-Trade Mechanism with Free Riding

This paper studies the influence of free riding on enterprise product pricing and carbon emissions reduction investment, as well as the contract design to achieve supply chain coordination under the carbon trading mechanism. First, we discuss the situation where carbon emissions reduction investment affects the product price and income. It demonstrates that the optimal investment of the upstream manufacturer increases with the degree of the free riding of the downstream manufacturer. The upstream manufacturer can improve their carbon reduction invest- ment and the whole supply chain achieves Pareto improvement when the investment cost sharing contract is introduced. Nevertheless, under the cost-sharing contract the optimal investment of the decentralized supply chain is still lower than that of the centralized supply chain, and only in some particular cases can the two types of supply chain achieve equal total profits. Then, we preliminarily explore the situation where the product price and income is influenced by carbon emissions reduction investment. The consequences indicate that the optimal investment of the upstream manufacturers in this situation is less than the former one's, and the transfer payment mechanism is able to improve the level of the supply chain overall carbon emissions-reduction. Moreover, compared to the former situation, the effects of free riding of the downstream manufacturer are even more serious. The conclusions can provide some intellectual support for manufacturing enterprises to make reasonable emissions reduction strategies and coordinate the supply chain existing in free riding.

Buyer power and exclusion in vertically related markets

Suppliers and consumer organizations have become increasingly concerned by the build-up of buyer power of retailers in many markets. A major concern is that strong retailers will abuse their power to exclude products and rival retailers from the market to be able to increase prices to consumers. As a consequence, remedies to limit buyer power are discussed and implemented in many countries. In this paper we compare the incentives for exclusion, and the effect on consumers prices, under both buyer and seller power. We study a model with a dominant upstream manufacturer and a competitive fringe of producers offering their products to two differentiated downstream retailers. We compare the equilibrium outcome of this model when i) the dominant supplier holds all the bargaining power, and (ii) the retailers have all the bargaining power. We show that full or partial exclusion of either the competitive product or downstream retailers occurs when inter and intrabrand competition are strong. This is true both under seller and buyer power. However, in contrast to the received literature, we find that buyer power weakly enhances welfare compared to seller power because buyer power will lead to both more product variety (less exclusion) and lower retail prices.

Coal-Seam-Gas-Field Management: Forecasting During Shutdown and Recovery

This article, written by JPT Technology Editor Chris Carpenter, contains highlights of paper SPE 167088, ’Coal-Seam-Gas-Field Management: Well-Performance and Production Forecasting During Shutdown and Recovery Operations,’ by S. Magee, T. Ogilvie, and C. White, Origin Energy, prepared for the 2013 SPE Unconventional Resources Conference and Exhibition - Asia Pacific, Brisbane, Australia, 11-13.November. The paper has not been peer reviewed. Queensland, Australia, is currently host to a number of coal-seam-gas (CSG) to liquefied-natural-gas (LNG) projects under development. However, the need to build field deliverability before the availability of export gas markets presents a significant challenge. CSG wells must be dewatered; during this process, gas production may need to be constrained. The ability to manage and forecast production performance in a field-turndown scenario is therefore critical. A study of production data from CSG-production-interruption events was conducted to determine how wells reacted to turndown of gas-production rates. Introduction There are currently three major CSG-to-LNG projects under construction in Queensland. A number of other projects are also proposed and are currently in various stages of planning and approval. The transition from a domestic gas market to an export LNG market presents many opportunities and challenges for gas producers. When the LNG-export facilities are commissioned, the gas demand markedly increases over a short period of time. To ensure the best return on capital investment and to satisfy export contracts, the use of these export facilities needs to be maximized as soon as possible after commissioning. To optimize field output at the time that downstream facilities become operational, the CSG reservoirs must be de watered in advance, resulting in an increase of produced-gas volumes along with the early water production. One challenge for upstream producers is how to manage field deliverability during a period (the ramp period) when there is little ability for existing markets to absorb significant increases in gas supply. Possible solutions include gas storage, flaring, and the constraining of gas production while continuing to dewater the reservoir (turndown), or some combination of these and other strategies. The optimum strategy is likely to be a function not only of reservoir performance but also of the various commercial, operational, and project-execution constraints faced by each operator. Review of Historical Production Data Historically, field turndown in the areas of study has been achieved through the selective choking or shut-in of individual producing wells. The primary factors in well selection have been gas and water production, completion status, and liquid-lift calculations.

Consumer returns policies with endogenous deadline and supply chain coordination

This paper considers returns policies under which consumers’ valuation depends on the refund amount they receive and the length of time they must wait after the item is returned. Consumers face an uncertain valuation before purchase, and the realization of that purchase's value occurs only after the return deadline has passed. Depending on the product lifecycle length and magnitude of return rate, a retailer decides on strategies for that product's return deadline, including return prohibition, life-cycle return, and fixed return deadline. In addition, the influence of the return deadline on consumers’ behavior and the pricing and inventory policies of the retailer are systematically investigated. Moreover, based on the analysis of consumer return behavior on a traditional buy-back contract, we present a new differentiated buy-back contract, contingent on return deadline, to coordinate a supply chain consisting of an upstream manufacturer and a downstream retailer. Finally, extensions on some specific behavioral factors such as moral hazard, inertia return, and external effect are investigated.

MANUFACTURER LEADING CONSIGNMENT CONTRACT WITH QUALITY DESIGN

ABSTRACT We consider a supply chain with an upstream manufacturer and a downstream retailer under a consignment contract. We adopt a game theoretic framework to study the optimal decisions and channel performance. The manufacturer leads the game by choosing product quality and selling price, followed by the retailer setting the revenue share and the manufacturer delivering a quantity to the retailer. We compare this model with the centralized model and a model in which the retailer leads the game by setting the revenue share. We find that the price-quality ratios in the three models are the same. The manufacturer leading the game will result in lower service level and stocking quantity than the retailer leading the game. We also compare other decisions, profits and supply chain performance. Keywords product quality; consignment contract; revenue sharing; supply chain; price-setting newsvendor

Strategic Information Sharing in Competing Channels

We investigate strategic information sharing in two competing channels. The retailer in a channel can ex post decide whether to share private demand information with his upstream manufacturer after the content of information becomes known. We find that a retailer discloses low demand and withholds high demand to induce lower wholesale prices from his manufacturer. We show that a retailer should share less information when the retail market becomes more competitive, but should disclose more information when his capability to acquire information improves. When a decentralized supply chain competes with an integrated channel, we show that firms in the supply chain benefit from the rival channel's effort to improve information capability, that the incentive for the retailer in the supply chain to improve his information capability increases with the intensity of competition and with the rival channel's information capability, and that the retailer may not want to pursue perfect information acquisition even when doing so is costless. Extensive numerical studies demonstrate that similar results also hold for two decentralized supply chains competing with each other.

Social Responsibility in a Bilateral Monopoly

We work on a linear bilateral monopoly to analyze the effects of firms' social concern. Both firms in the market, the up-stream manufacturer and the down-stream retailer, can be socially concerned. Firm's social concern is modeled through a broader firm objective. In addition to their profit both firms also care about a share of consumer surplus. In our two stage game, at first the manufacturer fixes the wholesale price per quantity, which has to be paid by the retailer.Subsequently, the retailer chooses the optimal quantity. The results show that firm's social concern increases firm profit for the manufacturer as well as the retailer's profit. Moreover, the firms' broader objective function softens the classical double marginalization problem, because in equilibrium all market participants, consumers included, are better off compared to a bilateral monopoly with two pure profit-maximizing firms. Therefore, firms' social responsibility results in a Pareto improvement.

Information sharing in a supply chain with a make-to-stock manufacturer

We study ex ante information sharing in a supply chain consisting of a downstream retailer and a make-to-stock upstream manufacturer. The retailer has imperfect demand information and may choose to share it with the manufacturer. Based on the information sharing arrangement, the manufacturer makes the wholesale price and the stocking level decisions. Then the retailer decides the order quantity and the manufacturer fulfills the order up to the available stock level. We find that the retailer has an incentive to voluntarily share the information with the make-to-stock manufacturer if the magnitude of demand uncertainty is intermediate. This stands in sharp contrast with the existing studies which show that the retailer never shares information when the manufacturer is make-to-order. Our results highlight the interdependence between the retailer׳s incentive to share information and the manufacturer׳s operational and marketing decisions.

The Optimal Scope of the Royalty Base in Patent Licensing

There is considerable controversy about the relative merits of the apportionment rule (which results in per-unit royalties) and the entire market value rule (which results in ad-valorem royalties) as ways to determine the scope of the royalty base in licensing negotiations and disputes. This paper analyzes the welfare implication of the two rules abstracting from implementation and practicability considerations. We show that ad-valorem royalties tend to lead to lower prices, particularly in the context of successive monopolies. They benefit upstream producers but not necessarily hurt downstream producers. When we endogenize the investment decisions, we show that ad-valorem royalties improve social welfare when enticing upstream investment is optimal or when multiple innovators contribute complementary technologies. Our findings contribute to explain why most licensing contracts include royalties based on the value of sales.

Vertical integration with endogenous contract leadership: Stability and fair profit allocation

This paper studies vertical integration in serial supply chains with a wholesale price contract. We consider a business environment where the contracting leader may be endogenously changed before and after forming the integration. A cooperative game is formulated to normatively analyze the stable and fair profit allocations under the grand coalition in such an environment. Our main result demonstrates that vertical integration is stable when all members are pessimistic in the sense that they are sure that they will not become the contracting leader if they deviate from the grand coalition. We find that in this case, the grand coalition’s profit must be allocated more to the retailer and the members with higher costs. Nevertheless, we also show the conditions under which the upstream manufacturer can have strong power as in traditional supply chains.