Upstream Supply Research Articles

Partial vertical ownership in the presence of downstream competition

Firms sometimes acquire partial ownership of their upstream suppliers. Such ownership entails no direct control over the target firm's decision‐making; however, both firms might change their pricing strategies after forming a partial ownership relationship. This paper studies the economic impacts of partial vertical ownership (PVO) in a market with downstream competition, where a manufacturer supplies two competing retailers. We find that dividend payments between firms can alter firms’ incentives in their operational decisions and, hence, serve as an “invisible hand” to downstream competition and vertical interaction. We show that a higher PVO percentage can have both positive and negative effects because the acquiring retailer's gain from PVO depends on not only its own sales but also the competitor's sales. Thus, the PVO decision (i.e., the percentage of ownership to acquire) has an inverted U‐shaped effect on the resulting profit for both the acquiring retailer and the manufacturer, which implies an intermediate PVO percentage in equilibrium. Second, the relative strength of the positive and negative effects depends on the acquiring retailer's competitive position. We show that the manufacturer prefers establishing PVO with the retailer with a valuation disadvantage because the disadvantaged retailer can obtain more benefits from PVO and is willing to pay higher than the competitor. Last, we find that consumers benefit from PVO when the acquiring retailer is the retailer with a valuation advantage but may become worse off when the disadvantaged retailer acquires PVO. Our research provides managers with guidance on the optimal PVO percentage and policymakers with insights on regulating PVOs for consumer protection.

Cross-Licensing in a Supply Chain with Asymmetric Manufacturers

Problem definition: Qualcomm, the largest cellphone chipmaker in the world, had adopted a cross-licensing agreement with its clients, downstream cellphone manufacturers. It requires cellphone manufacturers to allow each other to use their patents for free. This cross-licensing practice has received considerable scrutiny and attention around the world. We study the impacts of cross-licensing in a supply chain in which an upstream supplier requires its downstream competing manufacturers to cross-license, where they are asymmetric in their innovation capabilities. Methodology/results: We build a stylized model of a supply chain consisting of one supplier and two competing manufacturers and conduct game-theoretic analysis. We find that the supplier always prefers adopting cross-licensing ex post after manufacturers’ investments are sunk, but it may prefer committing to no cross-licensing ex ante. Specifically, the supplier should commit to not using cross-licensing if the inferior manufacturer’s cost of innovation is high or the effectiveness of cross-licensing is high. Furthermore, cross-licensing may increase innovation, the superior manufacturer’s profit, and social welfare under certain conditions. Interestingly, when the superior manufacturer’s cost advantage is intermediate, the inferior manufacturer’s innovation level first increases and then decreases in the effectiveness of cross-licensing. In addition, the inferior manufacturer’s profit also first increases and then decreases as the effectiveness level of cross-licensing increases. The cross-licensing policy benefits consumers when its effectiveness level is low and the superior manufacturer’s innovation cost is either high or low. Managerial implications: Our results provide guidance on when a supplier should adopt the cross-licensing strategy. For policy makers, our findings show that cross-licensing can be beneficial for consumers and the society. In particular, to increase social welfare, policy makers may consider encouraging cross-licensing with low effectiveness level when the superior manufacturer’s innovation cost is either low or high. Funding: This research is supported by Fund for Distinguished Young Scholars, Natural Science Foundation of Guangdong Province, China [Grant 2022B1515020027]. Supplemental Material: The e-companion is available at https://doi.org/10.1287/msom.2019.0477 .

Ripple effects in regional value chains: Evidence from an episode of the US–China trade war

AbstractThis study empirically examines the ripple effect of demand shocks on upstream suppliers in regional value chains. Specifically, we investigate how changes in US imports from China alter China's imports of intermediate inputs in machinery industries from Japan, South Korea and Taiwan. The analysis of China's monthly imports from the three supplier economies during 2018–2019 finds that the decrease in China's output exports to the US caused by the Trump tariffs reduced China's input imports from supplier economies. Also, this adverse ripple effect was the most significant in Taiwan, where multinational enterprises use China as an export platform.

Complex supply chain structures and multi-scope GHG emissions: the moderation effect of reducing equivocality

PurposeClimate change requires the reduction of direct and indirect greenhouse gas (GHG) emissions, a task that seems to clash with increasing supply chain complexity. This study aims to analyse the upstream supply chain complexity dimensions suggesting the importance of understanding the information processing that these may entail. Reducing equivocality can be an issue in some dimensions, requiring the introduction of written guidelines to moderate the effects of supply chain complexity dimensions on GHG emissions at the firm and supply chain level.Design/methodology/approachA three-year panel data was built with information obtained from Bloomberg, Trucost and Compustat. Hypotheses were tested using random effect regressions with robust standard errors on a sample of 394 SP500 companies, addressing endogeneity through the control function approach.FindingsHorizontal complexity reduces GHG emissions at the firm level, whereas vertical and spatial complexity dimensions increase GHG emissions at the firm and supply chain level. Although the introduction of written guidelines neutralises the negative effects of vertical complexity on firm and supply chain GHG emissions, it is not sufficient in the presence of spatial complexity.Originality/valueThis paper offers novel insights by suggesting that managers need to reconcile the potential trade-off effects on GHG emissions that horizontally complex supply chain structures can present. Their priority in vertically and spatially complex supply chain structures should be to reduce equivocality.

Counterfeiting and firm survival. Do international trade activities matter?

Counterfeiting is a phenomenon that threatens global competition and economic growth, and it is well-known that the presence of illicit fake products unfairly altering competition, can affect firm profitability and even, in some cases, force owners to close their businesses or declare bankruptcy. By introducing three new complementary measures of counterfeiting, this study examines the intra- and inter-industry effects of counterfeiting on Italian firm survival taking into consideration the differing degree of a firm’s involvement in international trade activities. Overall, the results of micro-econometric analysis indicate that the probability of a genuine firm exiting the market increases when the effect flows from the “fake” sector to its upstream genuine suppliers; vice versa, it decreases when the effect flows from the “fake” sector to its downstream genuine customers. However, when classifying firms as trading and no trading firms, we found that these results are confirmed only for the latter. Our evidence, which is robust to different estimation methods, provides room for policy and manager interventions.

Australia’s regulation of scope 3 emissions

Greenhouse gas (GHG) emissions occur throughout the value chain of petroleum developments, including scope 3 emissions, which occur because of activities related to a development but not controlled or owned by that facility’s business. Scope 3 emissions are created predominately by using hydrocarbon products produced by Australia’s petroleum industry. The Australian petroleum industry is subject to a structured and robust regulatory framework to manage environmental impacts. Recently, scope 3 emissions from Australia’s petroleum sector are facing greater regulatory scrutiny. There are a number of drivers for scope 3 emissions regulation, including: Environment Protection and Biodiversity Conservation Act 1999 (Cth) section 527E indirect consequences of an action. Western Australian Draft revised Environmental Factor Guideline – Greenhouse Gas Emissions. These mechanisms provide Australian regulators the ability to enforce project proponents to manage their scope 3 emissions. Some measures that project proponents use to meet these requirements are: Assist the upstream supply network (e.g. regasification and distribution) to implement fugitive methane emissions reduction measures such as the Methane Guiding Principles; Undertake an annual review of indirect emissions; and Collaboratively work with customers to reduce emissions. This creates a project-centric approach to scope 3 emissions management. This paper explores regulation of scope 3 emissions, the impacts this regulatory approach has on project proponents and customers, whilst also considering alternative mechanisms to manage these emissions and meet regulatory requirements and climate goals.

Strategic Marketing Approach of Indonesia Aluminium Mineral Industry: Upstream and Downstream Analysis

The research aimed to determine the causes of imports by analyzing the upstream and downstream sides of the existing aluminium industrial chain. The research applied a descriptive-exploratory approach by collecting secondary data from credible sources. Interviews and focus group discussions with appropriate experts were also conducted to obtain supporting data. Research shows that aluminium imports will continue both in the short and long term. It is due to the upstream supply, especially in aluminium smelters, which cannot keep up with the increasing demand. Even though the market opportunity, especially in the automotive, construction, and power cable segments, is enormous and continues to grow, if there is not enough supply, the deficit of aluminium metal will continue to occur. It takes encouragement from the Government's political will to provide ease of electricity sources, increase production capacity and technology, change the mindset from relying on traders solely towards the mindset of the industrialist.

Combating fraudulent returns using blockchain technology

AbstractFraudulent returns have become increasingly frequent in the development of online retail platforms, leading to huge losses for retailers. A blockchain‐based system can help eliminate this problem primarily because the data stored in a blockchain network cannot be modified. In this paper, we study the impact of blockchain technology that aims to eliminate fraudulent return behavior on retailers and their upstream suppliers. We develop a game‐theoretic model that comprises a supplier, a retailer, and customers and analyze the equilibrium outcomes. The results show that the retailer would (not) adopt blockchain technology if the efficiency of the supplier's investment in the innovation of its products is high (low). Moreover, if the retailer's loss from the return is low (high), the adoption of blockchain technology decreases (increases) the supplier's investment and the wholesale and retail prices. In terms of its effect on profitability, we reveal that if the fraudulent return losses are high, using blockchain technology always benefits the supplier; otherwise, it increases retailer profitability and supply chain performance but may make the supplier suffer losses in profits. Interestingly, the retailer would adopt blockchain technology to ensure profitability in situations where the number of customers without fraudulent returns and the intensity of losses are low; however, this weakens supplier profitability and meanwhile reduces supply chain performance.

Radical innovations as supply chain disruptions? A paradox between change and stability

AbstractSupply chains withstand multiple tensions, and some of which are paradoxical. Radical product and process innovations bring such tensions to the forefront by disrupting supply chains. Using two illustrations, this article considers the paradoxical tension between change and stability in upstream supply chains, which becomes particularly salient after radical innovation. Furthermore, the article discusses why and how paradox theory can help firms understand and manage this pressing tension between stability and change. This article then presents future research opportunities for using paradox theory to investigate other persistent post‐innovation tensions in upstream supply chains. The aim of this article is to encourage new studies that develop responses to such paradoxical tensions, an area ripe for research.

Brand-Owners’ Exclusive Channel Strategies in Multitier Supply Chains: Effect of Contract Unobservability

In multitier supply chains, brand-owners often form exclusive deals with downstream retailers or upstream suppliers. Therefore, the selection of exclusive channel strategies becomes a critical decision for brand owners, resulting in three typical structures: a flexible structure, an exclusive retailing-channel structure, and an exclusive purchasing-channel structure. This paper contributes to the literature by formulating these three representative channel structures in a three-tier supply chain. Both observable and unobservable contracts are considered in each structure. We build game-theoretical models and derive the equilibrium outcomes under observable and unobservable contracts. We find that the exclusive retailing channel is more beneficial for brand-owners, regardless of whether the contracts are observable or unobservable. Additionally, the exclusive retailing channel benefits the entire supply chain more than the exclusive purchasing channel when the level of channel substitutability is low (high) under contract observability (unobservability). With regard to the effect of contract unobservability, we find that it can benefit brand-owners when the level of channel substitutability is low, but it can harm them when the level of channel substitutability is high. Furthermore, we explore the effects of channel substitutability and demonstrate that brand-owners’ performance can be positively and negatively affected by the channel substitutability under contract unobservability. Our findings provide operational strategies for brand-owners to form exclusive channels in a multitier supply chain.

Retailer Information Sharing Strategy with Counterfeiter Encroachment

In this paper, we examine the retailer’s information sharing decision in an authentic supply chain with a single supplier and a single retailer under different counterfeiter encroachment situations. We propose a Stackelberg game model to analyze the optimal wholesale price of the supplier, the optimal order quantity of the retailer and the optimal production quantity of the counterfeiter. We obtain the information sharing strategies of the retailer and analyze the impact of the counterfeiter on the authentic supply chain. It is revealed that: (1) under certain conditions, the retailer will voluntarily share information with the upstream supplier and (2) the existence of the counterfeiter may increase the profit of the authentic supply chain.

Regional Carbon Emissions and Downstream and Upstream Supply Chain Decisions for Firms

The supply chain is essential for comprehending the financial behavior and decision-making of firms. Under the macro trend of reducing carbon emissions, there is a close connection between regional carbon emissions and corporate supply chain decisions. However, there exist few researches on the relationship between "regional carbon emissions" and "downstream and upstream supply chain concentration of firms". In view of this, this paper empirically analyses the impact of regional carbon emissions on the decision of downstream and upstream concentrations of firms, using the panel statistics of A-share listed firms in Shenzhen and Shanghai between 2008 and 2020 as the research samples. The findings show that regional carbon emissions have a significant heterogeneous impact on the downstream and upstream supply chain decisions of firms, reducing the upstream concentration of firms but strengthening the downstream concentration of firms. The mechanism analysis illustrates that regional carbon emissions decrease upstream supply chain concentration by forcing local firms to increase green innovation and weaken corporate governance and increase downstream supply chain concentration by raising the financial constraints of local firms. This paper not only enriches the field of research on influencing factors in corporate supply chain decision-making but also serves as a reference for the construction of green supply chains in the background of carbon neutrality, thus having significant practical implications as well as policy implications.

Improving the time-based performance of the preparatory stage in textile manufacturing process with value stream mapping

PurposeThe evaluation of time-based performance is a valued approach in the lean management thinking which is based on delivering value from customer's perspective. This approach contributes for long-term competitiveness and success in today's business environment. The focus of this study is to analyse the cycle time and manufacturing lead time with value stream mapping (VSM) in the preparatory stage of the textile fabric manufacturing process and to identify and improve the non-value adding activities in the value chain (VC). The study presents an insight on the translation of performance improvement across functions and how upstream supply chain (SC) segments can be linked in the performance improvement program. It also covers how the application of VSM improves visibility and planning flexibility in textile fabric manufacturing process.Design/methodology/approachThe time-based performance was evaluated using VSM and recording of the activity times in the existing process. The impact of the quality of supplier's raw material was also measured contributing to identify the strategy for procurement and the means to establish a feedback system to the upstream segments of the SC. The methodology of VSM, observation of the practice and the expertise of the individuals involved with the process were utilised to develop the value stream maps and to identify value adding activities, non-value adding activities, existing gaps and plans for improvement.FindingsThe means for improving the time-based performance were identified and their impact was measured. The factors responsible for improvement are related to the production system and with the procurement strategy. The improvement was achieved in terms of available capacity utilisation, balancing the work flow in the preparatory stages, visibility of the process by measuring its capability and flexibility for the planning function. The study revealed that the effectiveness and enhancement of VSM and related tools should be adopted to address the issue of limiting success rates of long term and repeating application of such tools. Continuous improvement, innovations and the systematic embedding of VSM in the process life cycle provide the ways for achieving long-term success.Research limitations/implicationsThe paper presents a real and in-depth study on the application of VSM in the textile manufacturing process. The scope of the study is broad; it covers activities across functions with actual estimates of activity times in the manufacturing process for the focused value streams. It offers researchers the opportunity to analyse the translation of productivity improvement across functions and how upstream SC segments can be linked in a performance improvement program.Practical implicationsThe study offers useful insight for the managers in textile manufacturing and other sectors for improving the time-based performance and achieving higher utilisation of capacity. It identified the production factors and their impact on warping and sizing cycle time in selected value streams and those which share common activities. It also identified the directions for future research when repeating the application of VSM in the continuous improvement cycle. Furthermore, since the industries need to progress towards advanced systems including Industry 4.0 standards, adoption of advanced VSM tool with relevant technology can align their production systems to develop the required capability. This will also bring a sustainable competitive advantage in the system.Social implicationsThe focused sector is stagnant in terms of productivity and innovation. The adoption of the advanced tools can facilitate the implementation of continuous improvement and innovation strategies.Originality/valueThe main focus of this study is to analyse and improve the cycle time in the preparatory stage of the fabric manufacturing process. This has impact on other important and tangible measures including capacity utilisation and work flow and intangible measures including production planning flexibility and process visibility. The improvement impact is across departments.

Effect of risk aversion on supply chain performance and energy contracting design with financial asymmetry

AbstractEnergy performance contracting is a contractual arrangement between clients and energy service companies. At present, it is a key tool to implement energy efficiency measures in the existing supply chain management. In this paper, we study the efficiency of the energy performance contracting in a supply chain including one risk‐averse supplier and two risk‐neutral manufacturers with financial asymmetry. The manufacturer with weak finance has no funds to order enough raw materials; thus, the supplier offers a trade credit financing to ensure her normal operation and participate in the competition with the financially strong manufacturer in the market. However, neither manufacturer has extra capitals to develop emission reduction activities. Therefore, the upstream supplier acts as an energy service company and provides an energy performance contracting for two downstream manufacturers to reduce carbon taxes. We analyze important factors such as risk aversion coefficient, carbon tax saving sharing ratio, and variable cost coefficient to explore whether and which manufacturer the supplier should select to provide an energy performance contracting. The results show that, when the risk aversion is high, the supplier will not provide energy‐saving services for any manufacturer. When the risk aversion and the variable cost are low, the supplier tends to offer an energy performance contracting for the manufacturer with weak finance, because the supplier can get more utility from higher wholesale price. However, with the increase of costs, the supplier with a low risk aversion is more willing to provide emission reduction services for the financially strong manufacturer. Furthermore, sensitivity analysis demonstrates that there is always a Pareto region to optimize the utility of supplier and manufacturers, when the supplier provides energy performance contracting for both manufacturers.

Solving a Distribution-Free Multi-Period Newsvendor Problem With Advance Purchase Discount via an Online Ordering Solution

In this paper, we study a distribution-free multi-period newsvendor problem with advance purchase discount (APD). In addition to the regular-order placed at the beginning of each period, a decision-maker (DM) can also commit to an advance-order from the upstream supplier and receive discounts. The goal of the DM is to maximize total profits, and in this problem, the DM only has access to past demand data. To solve this problem, we apply an online method based on the theory of prediction and learning with expert advice to propose an explicit online ordering solution by using the fixed-stock policy as expert advice. With the properties of the gain function, we derive a theoretical result that guarantees, for any given advance-order quantity, the newsvendor’s cumulative gains achieved by the proposed online ordering solution converge to those from the best expert advice in hindsight for a sufficient large horizon. In addition, we extend the problem to the discrete case and obtain the corresponding explicit strategy and performance guarantee. Finally, numerical studies illustrate the effectiveness of the proposed solution, and the newsvendor’s total profits are comparable to the best expert advice. Sensitivity analysis also shows the robustness of the proposed solution.

Adoption of additive manufacturing technology: drivers, barriers and impacts on upstream supply chain design

PurposeThis paper investigates how the adoption of additive manufacturing (AM) impacts upstream supply chain (SC) design and considers the influence of drivers and barriers towards the adoption.Design/methodology/approachTen case studies investigating AM adoption by Original Equipment Manufacturers (OEMs) in five industries were conducted. This research is driven by a literature-based framework, and the results are discussed according to the theory of transaction cost economics (TCE).FindingsThe case studies reveal four patterns of AM adoption that affect upstream SC design (due to changes in supply base or types of buyer–supplier relationships): make, buy, make and buy and vertical integration. A make or buy decision is based on the level of experience with the technology, on the AM application (rapid manufacturing, prototyping or tooling) and on the need of control over production. Other barriers playing a role in the decision are the high initial investments and the lack of skills and knowledge.Originality/valueThis paper shows how different decisions regarding AM adoption result in different SC designs, with a specific focus on the upstream SC and changes in the supply base. This research is among the first to provide empirical evidence on the impact of AM adoption on upstream SCs and to identify drivers of the make or buy decision when adopting AM through the theoretical lens of TCE.

Compost fertilizer business supply chain management strategy for stability of potential added value of waste raw materials in Jambi province, Indonesia

This article describes strategies and policies for compost development based on the potential value-addition (VA) of waste raw materials and the problems faced in the supply chain. This research, which was conducted in the central area of smallholder oil palm plantations in Jambi province in Indonesia, is important because it is an integral part of the oil palm farmer's household independence efforts in the face of temporary income loss during the oil palm replanting program. In general, this study aims to develop a supply chain management strategy to maintain added value stability by ensuring the availability and price stability of the supply of waste raw materials, and product marketing policies in dealing with a single buyer (monopsony market). The data collected consisted of group historical data, interviews, and participatory observations. The method of analysis was descriptive based on data analysis using a value-added approach in a supply chain management framework. The research results show that: 1) the compost developed is not only able to provide VA but also encourages an increase in the selling value of the waste, 2) varies VA of is waste influenced by the price factor compared to the proportion of its use, 3) the VA is quite sensitive to changes on output price. The problem encountered in the downstream supply chain is the increase in the price of raw material for solid waste in cowsheds due to the gap between demand and supply. The level of availability of raw materials for cowshed solid waste depends on efforts to accelerate livestock population growth, such as through the implementation of sharia-based profit-sharing investments. In the upstream supply chain, the weak bargaining position of compost entrepreneurs due to the monopsony market has caused output prices to drop dramatically. The monopsony market that is faced has resulted in the low bargaining power of the compost business groups in price negotiating. Based on the findings, it can be concluded that government intervention is urgently needed to encourage the development of organic crop cultivation to create a more diversified market demand for compost. Key words: compost, organic, palm oil, raw material, solid, strategy, waste

Enabling roles of integration and resilience for sustainable supply Chain performance: an empirical study on China’s E-commerce platforms

ABSTRACT With the rapid expansion of platform-oriented business models, the sustainability of e-commerce platforms which integrate and match the upstream supplies and downstream demands has become increasingly important. This paper studies the enabling roles of integration and resilience on sustainable supply chain performance (SSCP) of e-commerce platforms in China. A comprehensive survey for supply chain professionals from various e-commerce platforms is conducted, and 227 valid responses are obtained. Based on the structural equation modelling (SEM) approach, the findings suggest that: (1) supplier integration (SI), internal integration (II) and customer integration (CI) all actively promote supply chain resilience (SCR); (2) supplier integration (SI) and internal integration (II) directly promote SSCP, and customer integration (CI) hardly directly affect SSCP. However, II mediates the relationship between SI, CI and SSCP, and the positive role of CI on SSCP can be achieved through the mediating effect of II; (3) SCR directly promotes SSCP, while it also mediates the association among SSCI and SSCP. The results provide insights on how to differentiate the impacts of SI, CI, II and the role of SCR on SSCP.

Vertical Contract Disclosure in Three‐Tier Industries*

Consider a three‐tier industry with a monopolist supplying a manufacturer which sells its product to final consumers through two retailers. Contracts are linear and secret. Hence, upon receiving an out‐of‐equilibrium offer, each retailer must form a belief about the identity of the deviating upstream firm. This beliefs' specification problem wipes out if an Open Book Accounting (OBA) policy is implemented, whereby the input price is disclosed to retailers. Under Cournot (Bertrand) competition, OBA increases industry profits and consumer surplus if retailers believe that any out‐of‐equilibrium offer is more likely to reflect a deviation by the upstream supplier (by the manufacturer).

Rubber and Elastomer Industry in Taiwan: A Study of Rubber & Elastomer Industry in Taiwan

Its purpose is widely distributed. It is one of important raw material and can be used and cover in high-tech industries, traditional industries or relevance of human life various and other related industries. Therefore, in the global raw materials supply chain, it definitely plays a decisive role. In this paper is not only to explore the Rubber origin and introduce, but also to cited the major global supply chains and markets artery. The Rubber industry is sprouting in Taiwan since after World War II, such as Formosa Chemicals, TSRC, CSRC, polyethylene and other petrochemical industrial. In response to domestic need, include as tyres, shoe, the cable, ball, high-tech industries, and even to traditional industries and consumer goods, and so on. So the utilization of distributed is broad and deep. Yeu Guan Industrial Co., Ltd. was founded in 1996. Because of entering to this market early; thinking and certainly, Rubber will be infinitely extended to be a major raw materials and to become one of major raw materials in worldwide related companies. Therefore, to start supply the tyre industry at the beginning, and step by step to contact different type of enterprises and become the upstream major Rubber material supplier. This study is explaining the operation strategy of rubber industry under Yeu Guan, how to manage the company to face the global market changed and to create new market operation. The main purpose is to create new aspect of rubber industry, by collecting price reunion and challenge hurdles.