Upstream Parties Research Articles

Enhancing Customer–Supplier Coordination Through Customer-Managed Inventory

In recent years, there has been an increasing trend in supply chains to employ a “control tower” approach to improve supply chain performance. One such strategy is customer-managed inventory (CMI) in which the customer (the downstream party) controls the inventory of the supplier (the upstream party). However, the optimal design of the inventory control policy and the required incentive structure for CMI has not been fully explored in the related literature. In this paper, we develop a two-echelon model consisting of a supplier and a customer that captures the interaction between both decision makers. Analysis of this model indicates that achieving the potential benefits of CMI requires suitable incentive mechanisms to be put in place. The two-echelon inventory system model, however, does not give closed-form solutions, which are required to generate an optimal solution to the inventory control and incentive problem. To address this challenge, we propose an approximate model, which decouples the two-echelon model into two newsvendor-type models with each party operating a single-echelon system. This approximate model requires the introduction of additional cost parameters so that the decoupled model captures the cost implications of supplier shortages in the original two-echelon model. By developing appropriate values for these cost parameters, the approximate model yields near optimal results. Analysis of the solution reveals important operational factors that determine which environments are conducive for CMI and conditions for Pareto improvement of all stakeholders. This paper was accepted by Jayashankar Swaminathan, operations management. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2021.03658 .

Financial Feasibility Assessment for PT ABC LNG Production Facility Expansion Plan

PT ABC is an LNG producer that has been producing a reliable LNG for its customers since 2013. Initial GSA with upstream parties is set to be expired in 2026, however, recent development indicates that upstream parties have secured PSC extension for another 20 years. Considering this development, PT ABC is considering an opportunity to secure a long-term gas supply that enables production capacity expansion which will create additional revenue and improve plant reliability. A technical feasibility study has been performed and 2 options with estimated construction time of 30 months are considered feasible. This final project aims to provide a financial feasibility assessment of the production capacity expansion project with capital budgeting and risk assessment technique. Capital budgeting analysis using base case scenario indicates that both options will provide additional value to DSLNG with an estimated NPV 52.1 MUSD, IRR 20.57%, DPBP 9.4 years, and PI 1.52 for Option 1, and estimated NPV 117.8 MUSD, IRR 28.77%, DPBP 8.62 years, and PI 2.68 for Option 2. However, this study also found that some variables are affecting the project financial feasibility significantly, such as LNG and feed gas price, plant availability, Capex realization and long-term debt interest rate. Monte Carlo simulation shows that the project has a probability of success (NPV > 0) of 54.24% for Option 1 and 65.80% for Option 2.

Property rights, transaction costs, and the limits of the market

To clarify the determinants and interaction of property rights and transaction costs, I study the design of the property rights on either a good whose consensual transfer entails a transaction inefficiency or an upstream firm’s input whose random cost is nonverifiable and ex ante non-contractible. More disperse traders’ valuations and larger odds that the upstream party can appropriate the quasi-rent induced by contract incompleteness produce more severe transaction inefficiencies and larger incomplete contracting costs, respectively. Larger transaction costs, in turn, induce weaker property rights because of the trade-off between inefficient exclusion from trade/innovation and expropriation. These implications survive when some transactors have more political influence on institutional design, or I consider the disincentive effect of weak property rights. Furthermore, they are consistent with the interplay among proxies for the availability of technological progress, severity of transaction costs and strength of property rights for 139 countries observed between 2006 and 2018.

Blockchain-Based IoT Devices in Supply Chain Management: A Systematic Literature Review

Through recent progress, the forms of modern supply chains have evolved into complex networks. The supply chain management systems face a variety of challenges. These include lack of visibility of the upstream party (Provider) to the downstream party (Client); lack of flexibility in the face of sudden variations in demand and control of operating costs; lack of reliance on safety stakeholders; ineffective management of supply chain risks. Blockchain (BC) is used in the supply chain to overcome the growing demands for items. The Internet of Things (IoT) is a profoundly encouraging innovation that can help companies observe, track, and monitor products, activities, and processes within their respective value chain networks. Research establishments and logical gatherings are ceaselessly attempting to answer IoT gadgets in supply chain management. This paper presents orderly writing on and reviewing of Blockchain-based IoT advances and their current usage. We discuss the smart devices used in this system and which device is the most appropriate in the supply chain. This paper also looks at future examination themes in blockchain-based IoT, referred to as the executive’s framework production network. The essential deliberate writing audit has been consolidated by surveying research articles circulated in highly reputable publications between 2016 and 2021. Lastly, current issues and challenges are present to provide researchers with promising future directions in IoT supply chain management systems.

Backward supply chain information sharing: who does it benefit?

PurposeThe purpose of this study is to explore the effect of backward supply chain information sharing (SCIS) on the performance of different parties along supply chains.Design/methodology/approachUsing data collected from 617 Chinese manufacturers, this study examines the effect of information sharing from manufacturers to suppliers (ISMS) on supplier and manufacturer responsiveness in both two- and three-tier supply chains and the transferrable effect of information sharing from customers to manufacturers (ISCM) on supplier responsiveness. The authors use structural equation modeling and regression analysis to estimate the proposed relationships.FindingsISMS is positively related to supplier responsiveness in both two- and three-tier SCIS, whereas its effect on manufacturer responsiveness is conditional, indicating that upstream receiving parties benefit more from backward SCIS. ISCM is positively related to supplier responsiveness, demonstrating the transferable effect of backward SCIS.Practical implicationsWhen designing SCIS strategies, managers should take into account the unequal distribution of benefits from SCIS and the transferable effect of backward SCIS. Specifically, companies should always motivate their downstream partners to engage in SCIS, while they themselves need to be cautious with information sharing. They should also be aware that their information sharing behavior may benefit a third upstream party.Originality/valueThis study provides deep insights into the distribution of the benefits from SCIS among supply chain partners and suggests that the direction and the role supply chain partners play (as receiving or disclosing parties) in SCIS matter.

Perception of food manufacturers towards adoption of halal food supply chain in Malaysia

PurposeFood industry players obtain the advantages of profits growth within the halal industry whereby the market is dynamic to generate profit. Hence, this study aims to analyse the perception of food manufacturers towards the adoption of the halal food supply chain (HFSC).Design/methodology/approachFor this study, 103 halal food manufacturers in Malaysia were selected as respondents. Perceptions of respondents towards HFSC were recorded using a five-point questionnaire. The questionnaire was designed by authors and adapted from a previous study. The questionnaire was circulated by two experts with proficiency in this filed.FindingsBy conducting exploratory factor analysis, the study found the perception of food manufacturers, which is expected business benefits play an important role in the adoption of HFSC. Halal integrity becomes the second factor to lead the company to its adoption. Organizational readiness is the third factor that drives the company to adopt HFSC.Research limitations/implicationsMajority of the sample was responded by Bumiputera companies. The study suggests focussing the study for non-Bumiputera companies to examine their influence towards HFSC. Furthermore, future studies should explore different sectors of halal, such as pharmaceuticals, cosmetics, travel and tourism, logistics, finance and e-commerce. Moreover, ensuring the status of halal should be more emphasized in food chains; thus, the source of risk in HFSC should be explored to secure the integrity of halal.Practical implicationsThe paper includes implications for the halal food industry, whereby the adoption of HFSC will contribute to the business benefits to create a more competitive advantage to the industry. Moreover, the implications of halal practice can create consumers’ trust on the halal product.Originality/valueThis paper fulfils an analysed need to study specifically on upstream parties by adopting HFSC.

Petisi Online Sebagai Media Advokasi Alternatif dalam Upstream Social Marketing

Social marketing as a method encourages behavioral change in individuals for a better life by adopting concepts and principles in commercial marketing. Changes of individual behavior are influenced by social contexts that cannot be separated from the role of the upstream actors (parties who have influence in the policy-making process). In accordance, targeting upstream actors for social marketing activities has become a challenge. Therefore, social marketers need to communicate creatively with upstream parties to support their social marketing goals. This conceptual article aims to explain the importance of moving upstream as a concept and describes the use of online petitions as an alternative platform for media advocacy establishing an upstream social marketing strategy. It is argued that the development of information and communication technology offers an online petition platform for reaching upstream parties. Through a study of literature method, this article presents a case of online petition Change.org Indonesia which is supported by the media and policymakers. Change.org Indonesia has been actively developing media advocacy through the press conference, press release and press note, social media, and offline actions or events to influence policymakers in order to create a supportive environmental condition for behavioral change.

Relational Contracts, the Cost of Enforcing Formal Contracts, and Capital Structure Choice - Theory and Evidence

This paper shows that the cost of enforcing contracts governing non-financial relationships between firms affects a firm’s financing structure. We analyze the interaction between a firm’s capital structure and the type of contracts it uses to deal with its suppliers. We first develop a theoretical model where a downstream party needs an intermediate good from an upstream party, and this intermediate good can be of high or low quality. Court-enforceable contracts can be used to enforce high quality, but their use is costly. If these costs are too high, relational contracts - self-enforcing informal arrangements that can be sustained in long-term relationships - are needed. Relational contracts, though, can only be sustained if debt is not too high. The reason is that a firm’s commitment in relational contracts is determined by its future profits in the cooperative relationship, and the need to repay debt reduces future profits. We therefore derive the prediction that, on average, higher costs of enforcing formal contracts should be associated with firms having less leverage. We test this prediction with the help of two datasets. First, the Microdatabase Directinvestment (MiDi) provided by Deutsche Bundesbank, which records balance-sheet information on the universe of German investments abroad, including detailed information on external debt and equity capital. Second, the World Bank’s Doing Business Database, which provides information on the average cost of enforcing (formal) contracts between a firm and a supplier of an intermediate good. Using a panel data model for fractional response variables, we can show that an increase in the cost of enforcing contracts in a country makes firms use substantially more equity financing.

The value of upstream recognition of goals in supply chains

PurposeThe literature on supply chain management has focused on the benefits of frequent and strategic communication in supply chains. However, it has paid much less attention to the difficulties and conflicts associated with day‐to‐day communications in supply chains. This discrepancy is surprising because operational communications play a crucial role in supply chain management. In this paper, the aim is to investigate when operational, day‐to‐day communications in supply chains become linked with conflicts and how these conflicts can be prevented.Design/methodology/approachThe authors surveyed respondents from the partner firms of 81 different supply chains. The data from 380 surveys were examined with moderated regression analyses.FindingsThe findings indicate that operational communications are linked with conflicts if upstream parties in supply chains do not recognise the importance that their downstream partners attach to certain performance objectives.Research limitations/implicationsFirst, the paper goes beyond the benefits of communication and demonstrates that communication in supply chains can also have drawbacks. Moreover, the paper shows how upstream goal recognition helps parties avoid conflicts in their day‐to‐day communications.Practical implicationsThe study points to the importance of developing upstream goal recognition in supply chains and provides several suggestions to promote upstream goal recognition.Originality/valueThe paper contributes to supply chain communication research by going beyond the benefits of communication and highlighting the difficulties that can accompany day‐to‐day operational communications. Moreover, it provides an explanation for the conditions under which operational communications are associated with conflict.

The Manufacturer's Incentive to Reduce Lead Times

Although, ceteris paribus, reducing lead times may be desirable from an overall system perspective, an upstream party (e.g., a manufacturer) may have strong disincentives to offer shorter lead times, even if this came at no cost. We consider a setting in which the downstream party has the ability to exert a costly effort to increase demand (e.g., through sales promotions, advertising, etc.) during the selling season, and compare two situations: one where there is zero lead time (i.e., all demand can be satisfied after observing the demand realization), and one where orders need to be made before demand is realized. We identify two interacting effects that may inhibit shorter lead times. A so‐called “safety stock effect” can be observed when a lower risk of stocking out under short lead times induces the downstream party to alter her order quantity. A second effect, termed as “effort effect,” arises if shorter lead times impact the downstream party's optimal sales effort, and, as a consequence, lead to different order quantities. We provide a formal characterization of both effects, insight into how these effects interact, and show under which conditions the manufacturer has an incentive to offer shorter lead times.

Integration and Information: Markets and Hierarchies Revisited

We analyze a rational-expectations model of price formation in an intermediate-good market under uncertainty. There is a continuum of dyads, each consisting of an upstream party and a downstream party. Both parties can make specific investments at private cost, and there is a machine that either party can own. As in property-rights models, different ownership structures create different incentives for the parties' investments. As in rational-expectations models, some parties may invest in acquiring information, which is then incorporated into the market-clearing price by the parties' trading behaviors. The informativeness of the price mechanism affects the returns to specific investments and hence the optimal ownership structure for individual dyads; meanwhile, the ownership choices by individual dyads affect the informativeness of the price mechanism. In equilibrium the informativeness of the price mechanism can induce ex ante homogenous dyads to choose heterogeneous ownership structures.

Dual-supply inventory problem with capacity limits on order sizes and unrestricted ordering costs

This paper considers a single-product dual-supply problem under a periodically reviewed, finite planning horizon. The downstream party, the manufacturer, is supplied by two upstream parties, local and global suppliers, with consecutive leadtimes. Both suppliers place per period minimum and maximum capacity limits on the manufacturer's orders. It is shown that a two-level modified base stock policy is optimal without any restrictions on the ordering costs. Using various analytical results, it is illustrated how the optimal policy parameters change as a function of the problem parameters. To prove the analytical results, a new functional property—bounded increasing [decreasing] differences—which is a subset of the increasing [decreasing] differences property commonly used in the literature is introduced. Numerical analyses are used to explain the trade-offs between complementary services in terms of prices, leadtimes and order capacity limits. For example, it is shown that the manufacturer follows different strategies for different product types: for inventory-cost-driven products, she relies on the local supplier to keep her supply chain responsive. Furthermore, the manufacturer procures from the local supplier as part of a balanced supply portfolio, i.e., orders from the local supplier are not limited to emergency situations. This role of the local supplier diminishes, however, as the leadtime increases. It is also found that increases in minimum capacity limits are generally more favorable to the local supplier. [Supplementary materials are available for this article. Go to the publisher's online edition of IIE Transactions for the following free supplemental resources: Appendix with additional proofs and further details of numerical analysis.]

The Roles of Distributor in the Supply Chain–Push-pull boundary

The purpose of this paper is to study the roles of the distributor in the supply chain and to explore its positive contributions. We find that the distributor should act as a push and pull boundary (also called decoupling point) of the supply chain. The definition of decoupling point is needed to be enhanced when the concept of the decoupling point is applied to an industry, like the electronics industry, due to the fact that several decoupling points along a supply chain are possible. The distributor, as a decoupling point, needs to resolve the overstock risk pooled from the upstream parties due to the economies of scale in the production process. On the other hand, the distributor needs to provide fast delivery service with small order quantities and to satisfy the high availability requirement from its downstream parties by providing postponement services to her partners in the supply chain.

Hierarchies, Relational Contracts and New Forms of Outsourcing

We observe that economic restructuring is significantly changing organizational governance. On the one hand, we witness an increase in mergers & acquisitions, which substitutes markets for hierarchies and, on the other hand, we see an increase in outsourcing and subcontracting activities, appearing to replace hierarchies by markets. However, there is evidence that an increasing part of outsourcing activities mix hierarchies with market forms of governance. The key argument of this paper is that firms have established governance structures based on markets, hierarchies and self-enforcing relational contracts so that they are able to keep a substantial amount of control despite of sourcing out labour. Furthermore, we argue that such hierarchical forms of outsourcing produce dependency. Using empirical evidence of the Austrian insurance industry, it is demonstrated that dependency is created, firstly, by the contractual restriction of alternative uses of resources, secondly, by support measures that bind the upstream party closely to the downstream party, thirdly, by relationship-specific investments made by the upstream party, and fourthly, by authority elements.

Levels of Asset Specificity in Relational Contracting

Standard property rights theory (whether static or dynamic) assumes assets are specific, but once this assumption is in place, the level of asset specificity has no bearing on the make-or-buy decision. While there are good reasons to doubt the universality of transaction cost economics' prediction that the more specific the asset, the more likely is vertical integration to be optimal, this is an issue that cannot be addressed within the existing property rights framework. In this paper, I provide a simple and straightforward way of incorporating these different levels of asset specificity in a relational-contracting property-rights model of the firm, and show that they matter even in a static model. Using the Outside Option principle in bargaining results in a model in which the integration choice is affected in a non-trivial way by realized asset specificity. For instance, I find that vertical integration is the efficient response to widely varying supply prices as long as the level of asset specificity is low enough. When asset specificity is high, on the other hand, the incentives of the upstream party are best aligned with those of the downstream party and incentives may be best provided under outsourcing. In general, under bargaining with outside options, the first best is easier (harder) to achieve with outsourcing than with integration when the degree of asset specificity is high (low).

FORCE MAJEURE CLAUSES—HOW DEPENDABLE ARE THEY?

Force Majeure clauses are becoming increasingly important to the energy industry. With the privatisation of downstream energy participants and removal of statutory immunities from liability, downstream participants are more likely to seek recourse from upstream parties where there is a failure in supply. Whether this will result in energy producers, wholesalers and retailers being held liable will generally depend on the wording of the force majeure clause contained in the relevant supply contract.This paper considers various issues that have arisen in the construction of force majeure clauses and makes suggestions as to how a party entering into a contract containing a force majeure clause can enhance the protection afforded by such a clause.