Contract Unobservability and Downstream Competition

2020 ◽  
Author(s):  
Xi Li ◽  
Qian Liu
Keyword(s):  
Supply Chain ◽  
Multiple Equilibria ◽  
Alternative Explanation ◽  
Common Knowledge ◽  
Wholesale Price ◽  
Problem Definition ◽  
Supply Chain Performance ◽  
Supply Chain Contracts ◽  
Managerial Implications ◽  
The Right

Problem definition: In this paper, we consider a supply chain with a manufacturer and two retailers who are contracted through wholesale prices or two-part tariffs. We depart from the existing literature by assuming that contract terms between the manufacturer and a retailer are not observed by the rival retailer. Academic/practical relevance: Although the existing literature typically assumes that they are common knowledge in the market, contract terms may not be observed by rival retailers under certain circumstances. This paper contributes to the literature by studying the effect of contract unobservability on supply chain performance. Methodology: We use game-theoretical methods to find the equilibrium. When there are multiple equilibria, we adopt passive beliefs as an equilibrium-refinement criterion. Results: We find that certain established results regarding observable supply chain contracts do not always apply when those contracts become unobservable to competing retailers. In particular, compared with when using two-part tariff contracts, the manufacturer may benefit from using wholesale-price contracts when contract terms are unobservable. Moreover, the total industry profit may increase under wholesale-price contracts. Managerial implications: Our results offer an alternative explanation for the popularity of wholesale-price contracts and suggest that members of the supply chain must take unobservability into account when selecting the right contracts. We also offer new insights into buyback contracts and downstream mergers under unobservable contracts.

scholarly journals Supply Chain Performance with Target-Oriented Firms

2021 ◽  
Author(s):  
Lucy Gongtao Chen ◽  
Qinshen Tang
Keyword(s):  
Supply Chain ◽  
Wholesale Price ◽  
Strong Support ◽  
Problem Definition ◽  
Expected Profit ◽  
Trading Partner ◽  
Supply Chain Performance ◽  
Decentralized System ◽  
Outside Option ◽  
Risk Neutral

Problem definition: We study a supply chain in which a supplier sets the wholesale price and a retailer responds with an order quantity. Both of the two firms can be either risk-neutral—maximizing the expected profit—or target-oriented, which is to maximize her or his ability to reach a target profit. Academic/practical relevance: Our work not only sheds light on the benefit/loss of trading with target-oriented decision makers but also, adds new knowledge to the supply chain coordination literature. Methodology: We provide strong support for firms’ target-based preference and the linear target formation model through a survey as well as analyzing company data. With the firms’ target-oriented behavior evaluated by a CVaR-satisficing measure, we apply a game theoretical framework to investigate how the target-based preference affects supply chain performance. Results: A firm, be it a supplier or a retailer, is always hurt by its target-based preference but can benefit from its trading partner’s target-based preference. A risk-neutral supplier, for example, can sometimes reap the whole supply chain’s profit if the retailer is target-oriented, and a target-oriented supplier always performs better with a target-oriented retailer than a risk-neutral one. Furthermore, a target-oriented retailer and/or supplier can help alleviate the double-marginalization effect and with a specific target, can help the supply chain achieve the same efficiency level as in a risk-neutral centralized system, with just a wholesale price contract. Another important finding is that if both firms are target-oriented, then the supply chain can have a higher expected profit under a decentralized system than a centralized one. This contrasts with the case when both firms are risk-neutral. We also investigate the role of outside option and retailer-type misidentification and find that both can alleviate the retailer’s disadvantage of being target-oriented. Managerial implications: (i) The target-based preference can be exploited by the trading partner, and hence, a firm should adopt the target-oriented decision criterion with caution. (ii) A target-oriented retailer can explore strategies such as revealing his outside option or hiding his target-based preference in order to be less manipulated. (iii) Whether a firm (and the supply chain) can benefit from its trading partner’s target-based preference often depends on how ambitious the trading partner (and the firm itself if it is target-oriented) sets the target. (iv) Target-based preference of one or both firms can help the supply chain reach the first-best efficiency. (v) When both firms are target-oriented, decentralization can be preferred to centralization.

scholarly journals Impacts of Counterfeiting on a Global Supply Chain

2020 ◽  
Author(s):  
Zelong Yi ◽  
Man Yu ◽  
Ki Ling Cheung
Keyword(s):  
Supply Chain ◽  
Supply Chains ◽  
Wholesale Price ◽  
Consumer Surplus ◽  
Global Supply Chain ◽  
Problem Definition ◽  
Network Externality ◽  
Global Supply Chains ◽  
Economic Implications ◽  
Managerial Implications

Problem definition: This paper investigates how counterfeits influence a global supply chain and how the supply chain should effectively take anticounterfeit actions. Academic/practical relevance: The impacts of counterfeiting have been increasingly profound on global supply chains. It is critical to understand how counterfeiting impacts supply chains when supply chain members act in their own interests, and how supply chains can effectively combat counterfeiting when all the members can contribute to it. This is the first paper that offers insights into these important questions. In particular, we examine who among the supply chain members is in the best position to perform counteracting activities, how these members can cooperate in anticounterfeiting, and what economic implications the anticounterfeit actions have to the supply chain, individual firms, consumer surplus, and social welfare. Methodology: We consider a supply chain consisting of a manufacturer and a retailer, and analyze a game-theoretical framework to derive the equilibrium. Results: The manufacturer prefers to induce the retailer to combat counterfeits rather than to combat itself. Contrary to conventional wisdom, counterfeits can increase the supply chain’s profit even in the absence of network externality effects. The crux is that the manufacturer lowers wholesale price to incentivize the retailer’s counteraction and, consequently, the threat of counterfeits can mitigate double marginalization and benefit the supply chain. Managerial implications: Our results demonstrate that a sustainability risk can trigger collaborative endeavors of supply chain members and thus be advantageous to the supply chain. The findings also underscore the important role that retailers should play in anticounterfeiting. Particularly, it can be in the supply chain’s interest that the manufacturer does not execute the counteraction, either jointly with the retailer or by itself.

Implications of Price Matching in Supply Chain Negotiation

2021 ◽  
Author(s):  
Weixin Shang ◽  
Gangshu (George) Cai
Keyword(s):  
Supply Chain ◽  
Social Welfare ◽  
Wholesale Price ◽  
Consumer Welfare ◽  
Problem Definition ◽  
Nash Bargaining ◽  
Price Matching ◽  
The Impact ◽  
Multiple Buyers ◽  
Wholesale Pricing

Problem definition: Few papers have explored the impact of price matching negotiation (PM), in which a channel matches its price with the resulting wholesale price bargained by another channel, on firms’ performances, consumer welfare, and social welfare, with and without supply chain coordination. Academic/practical relevance: Negotiation has been widely seen in determining both uniform and discriminatory wholesale prices, which affect outcomes of competitive supply chain practices. Methodology: To characterize the PM mechanism, we use game theory and Nash bargaining theory to compare PM with simultaneous negotiation (SN) through a common-seller two-buyer differentiated Bertrand competition model. Results: Our analysis reveals that PM can benefit the seller but hurt all buyers, which is at odds with some fair wholesale pricing clauses intending to protect buyers. Under coordination with side payments, however, all firms can conditionally benefit more from PM than from SN. Despite firms’ gains, PM leads to less consumer utility and social welfare compared with SN, unless the second buyer in PM is considerably less powerful than the first buyer. Coordination further worsens PM’s negative impact on consumer utility and social welfare. Moreover, the existence of a spot market can increase the wholesale price in PM, hurting buyers, consumers, and society. Furthermore, the qualitative results about PM remain robust under an alternative disagreement point for PM, multiple buyers, and other extensions. Managerial implications: This paper delivers insights on when price matching in supply chain wholesale price negotiation can benefit a seller, buyers, consumers, and society in a variety of scenarios. It advocates how managers can use PM to their own advantages and provides rationale to decision makers for policy regulations regarding wholesale pricing.

Supply Chain Coordination for E-Commerce: Risk Penalty vs. Flat Rate

2021 ◽  
Author(s):  
Ju Myung Song ◽  
Yao Zhao
Keyword(s):  
Supply Chain ◽  
Information Asymmetry ◽  
Risk Sharing ◽  
Supply Chain Coordination ◽  
Wholesale Price ◽  
Problem Definition ◽  
Third Party ◽  
Common Belief ◽  
Shipping Industry ◽  
Flat Rate

Problem definition: We study the coordination of an E-commerce supply chain between online sellers and third party shippers to meet random demand surges, induced by, for instance, online shopping holidays. Academic/practical relevance: Motivated by the challenge of meeting the unpredictable demand surges in E-commerce, we study shipping contracts and supply chain coordination between online sellers and third party shippers in a novel model taking into account the unique features of the shipping industry. Methodology: We compare two shipping contracts: the risk penalty (proposed by UPS) and the flat rate (used by FedEx), and analyze their impact on the seller, the shipper, and the supply chain. Results: Under information symmetry, the sophisticated risk penalty contract is no better than the simple flat rate contract for the shipper, against common belief. Although both the risk penalty and the flat rate can coordinate the supply chain, the risk penalty does so only if the shipper makes zero profit, but the flat rate can provide a positive profit for both. These results represent a new form of double marginalization and risk-sharing, in sharp contrast to the well-known literature on the classic supplier-retailer supply chain, where risk-sharing contracts (similar to the risk penalty) can bring benefits to all parties, but the single wholesale price contract (similar to the flat rate) can achieve supply chain coordination only when the supplier makes zero profit. We also find that only the online seller, but not the shipper, has the motivation to vertically integrate the seller-shipper supply chain. Under information asymmetry, however, the risk penalty brings more benefit to the shipper than the flat rate, but hurts the seller and the supply chain. Managerial implications: Our results imply that information plays an important role in the shipper’s choices of shipping contracts. Under information symmetry, the risk penalty is unnecessarily complex because the simple flat rate is as good as the risk penalty for the shipper; moreover, it is better for the seller-shipper coordination. However, under information asymmetry, the shipper faces additional shipping risk that can be offset by the extra flexibility of the risk penalty. Our study also explains and supports the recent practice of online sellers (e.g., Amazon.com and JD.com), but not shippers, to vertically integrate the supply chain by consistently expanding their shipping capabilities.

scholarly journals INFLUENCE OF CRITICAL SUCCESS FACTORS ON SUPPLY CHAIN PERFORMANCE OF COUNTY GOVERNMENTS IN KENYA

2019 ◽  
Vol 3 (4) ◽  
pp. 1-21
Author(s):  
PATRICIA SYOMBUA KIOKO ◽  
Dr. GEORGE OCHIRI
Keyword(s):  
Supply Chain ◽  
Quality Index ◽  
Success Factors ◽  
Supply Chain Performance ◽  
County Governments ◽  
Independent Variables ◽  
Schedule Management ◽  
Critical Success ◽  
Cost Metrics ◽  
The Right

Purpose: The purpose of the study was to examine influence of critical success factors on performance of county governments in Kenya with an aim of making recommendations on proper use.Methodology: The study employed a descriptive research design, targeting 163 procurement officers in the 5 of 13 county governments in Kenya which had a budget allocation of above Kshs 8 Billion according to FY 2017/2018 budgetary allocation by the National Treasury, the five were chosen because of their close proximity to Nairobi. The researcher preferred this method because it allows an in-depth study of the subject. Data was collected using self-administered questionnaires. Structured questionnaire was used to collect data. Data was analyzed using descriptive and inferential statistics. Quantitative data was analyzed using multiple regression analysisResults: The independent variables reported R value of .846 indicating that there is perfect relationship between dependent variable and independent variables. R square value of 0.716 which means that 71.6% of the corresponding variation in supply chain performance of the county governments can be explained or predicted by (quality index management, asset utilization management, schedule management and cost metrics management) which indicated that the model fitted the study data. The results of regression analysis revealed that there was a significant positive relationship between dependent variable and independent variable at (β = 1.240), p=0.00 <0.05).Conclusion: The study therefore establishes that; quality index management, asset utilization management, schedule management and cost metrics management influence supply chain performance of county governments.Policy recommendation: The study recommends that procurement officers should ensure that they strictly follow operational procedures to ensure that projects undertaken are of the right quality, in the right quantity, at the right time, to the right place from the right source. This will aim at satisfaction of customers in terms of cost, quality, and timeliness of the delivered product or service, minimizing administrative operating costs.

Coordination of Multiechelon Supply Chains Using the Guaranteed Service Framework

2021 ◽  
Author(s):  
Tor Schoenmeyr ◽  
Stephen C. Graves
Keyword(s):  
Supply Chain ◽  
Wholesale Price ◽  
Problem Definition ◽  
Quantity Discounts ◽  
Minimum Order ◽  
Base Stock Policy ◽  
Decentralized Decision Making ◽  
Guaranteed Service ◽  
Stock Policy ◽  
Different Parts

Problem definition: We use the guaranteed service (GS) framework to investigate how to coordinate a multiechelon supply chain when two self-interested parties control different parts of the supply chain. For purposes of supply chain planning, we assume that each stage in a supply chain operates with a local base-stock policy and can provide guaranteed service to its customers, as long as the customer demand falls within certain bounds. Academic/practical relevance: The GS framework for supply chain inventory optimization has been deployed successfully in multiple industrial contexts with centralized control. In this paper, we show how to apply this framework to achieve coordination in a decentralized setting in which two parties control different parts of the supply chain. Methodology: The primary methodology is the analysis of a multiechelon supply chain under the assumptions of the GS model. Results: We find that the GS framework is naturally well suited for this decentralized decision making, and we propose a specific contract structure that facilitates such relationships. This contract is incentive compatible and has several other desirable properties. Under assumptions of complete and incomplete information, a reasonable negotiation process should lead the parties to contract terms that coordinate the supply chain. The contract is simpler than contracts proposed for coordination in the stochastic service (SS) framework. We also highlight the role of markup on the holding costs and some of the difficulties that this might cause in coordinating a decentralized supply chain. Managerial implications: The value from the paper is to show that a simple contract coordinates the chain when both parties plan with a GS model and framework; hence, we provide more evidence for the utility of this model. Furthermore, the simple coordinating contract matches reasonably well with practice; we observe that the most common contract terms include a per-unit wholesale price (possibly with a minimum order quantity and/or quantity discounts), along with a service time from order placement until delivery or until ready to ship. We also observe that firms need to pay a higher price if they want better service. What may differ from practice is the contract provision of a demand bound; our contract specifies that the supplier will provide GS as long as the buyer’s order are within the agreed on demand bound. This provision is essential so that each party can apply the GS framework for planning their supply chain. Of course, contracts have many other provisions for handling exceptions. Nevertheless, our research provides some validation for the GS model and the contracting practices we observe in practice.

Product Flexibility Strategy Under Supply and Demand Risk

2021 ◽  
Author(s):  
Yimin Wang ◽  
Scott Webster
Keyword(s):  
Supply Chain ◽  
Supply And Demand ◽  
Problem Definition ◽  
Base Case ◽  
Supply Network ◽  
Aggregation Effect ◽  
Risk Aggregation ◽  
Managerial Implications ◽  
Product Flexibility ◽  
Global Uncertainty

Problem definition: With heightened global uncertainty, supply chain managers are under increasing pressure to craft strategies that accommodate both supply and demand risks. Although product flexibility is a well-understood strategy to accommodate risk, there is no clear guidance on the optimal flexibility configuration of a supply network that comprises both unreliable primary suppliers and reliable backup suppliers. Academic/practical relevance: Existing literature examines the value of flexibility with primary and backup suppliers independently. For a risk-neutral firm, research shows that (a) incorporating flexibility in a primary supplier by replacing two dedicated ones (in absence of backup supply) is always beneficial and that (b) adding flexibility to a reliable backup supplier (in absence of product flexibility in primary suppliers) is always valuable. It is unclear, however, how flexibility should be incorporated into a supply network with both unreliable primary suppliers and reliable backup suppliers. This research studies whether flexibility should be incorporated in a primary supplier, a backup supplier, or both. Methodology: We develop a normative model to analyze when flexibility benefits and when it hurts. Results: Compared with a base case of no flexibility, we prove that incorporating flexibility in either primary or backup suppliers is always beneficial. However, incorporating flexibility in both primary and backup suppliers can be counterproductive because the supply chain performance can decline with saturated flexibility, even if flexibility is costless. A key reason is that the risk-aggregation effect of consolidating flexibility in an unreliable supplier becomes more salient when flexibility is already embedded in a backup supplier. Managerial implications: This research refines the existing understanding of flexibility by illustrating that flexibility is not always beneficial. When there is a choice, a firm should prioritize incorporating flexibility in a reliable backup supplier.

Strategic Inventories Under Supply Chain Competition

2021 ◽  
Author(s):  
Xi Li ◽  
Yanzhi Li ◽  
Ying-Ju Chen
Keyword(s):  
Supply Chain ◽  
Supply Chains ◽  
Distribution Channel ◽  
Problem Definition ◽  
Supply Chain Competition ◽  
Managerial Implications ◽  
Holding Cost ◽  
Inventory Holding ◽  
Period Model

Problem definition: We consider the effects of strategic inventory (SI) in the presence of chain-to-chain competition in a two-period model. Academic/practical relevance: Established findings suggest that SI may alleviate double marginalization and improve the efficiency of a decentralized distribution channel. However, no studies consider the role of SI under chain-to-chain competition. Methodology: We build a two-period model consisting of two competing supply chains, each with an upstream manufacturer and an exclusive retailer. The retailers compete on either price or quantity. We characterize the firms’ strategies under the concept of perfect Bayesian equilibrium. We consider cases where contracts are either observable or unobservable across supply chains. Results: (1) SI still exists under chain-to-chain competition. Retailers may carry more inventory when the competition becomes fiercer, which further intensifies the supply chain competition. (2) Different from the existing findings, SI may backfire and hurt all firms. Interestingly, firms may benefit from a higher inventory holding cost. (3) Under supply chain competition, the prisoner’s dilemma can arise if competition intensity is intermediate; in other words, manufacturers are better off without strategic inventory, and yet they cannot help allowing strategic inventory, which is the unique equilibrium. Managerial implications: Despite its appeal among firms of a single supply chain, the role of SI is altered or even reversed by chain-to-chain competition. Conventional wisdom on SI should be applied with caution.

Supply Chain Thinking in Healthcare: Lessons and Outlooks

2020 ◽  
Author(s):  
Lidia Betcheva ◽  
Feryal Erhun ◽  
Houyuan Jiang
Keyword(s):  
Supply Chain ◽  
Supply Chain Management ◽  
Supply Chains ◽  
Healthcare Delivery ◽  
Healthcare Services ◽  
Lessons Learned ◽  
Problem Definition ◽  
Healthcare Organizations ◽  
Chain Management ◽  
Managerial Implications

Problem definition: The lessons learned over decades of supply chain management provide an opportunity for stakeholders in complex systems, such as healthcare, to understand, evaluate, and improve their complicated and often inefficient ecosystems. Academic/practical relevance: The complexity in managing healthcare supply chains offers opportunities for important and impactful research avenues in key supply chain management areas such as coordination and integration (e.g., new care models), mass customization (e.g., the rise in precision medicine), and incentives (e.g., emerging reimbursement schemes), which might, in turn, provide insights relevant to traditional supply chains. We also put forward new perspectives for practice and possible research directions for the supply chain management community. Methodology: We provide a primer on supply chain thinking in healthcare, with a focus on healthcare delivery, by following a framework that is customer focused, systems based, and strategically orientated and that simultaneously considers clinical, operational, and financial dimensions. Our goal is to offer an understanding of how concepts and strategies in supply chain management can be applied and tailored to healthcare by considering the sector’s unique challenges and opportunities. Results: After identifying key healthcare stakeholders and their interactions, we discuss the main challenges facing healthcare services from a supply chain perspective and provide examples of how various supply chain strategies are being and can be used in healthcare. Managerial implications: By using supply chain thinking, healthcare organizations can decrease costs and improve the quality of care by uncovering, quantifying, and addressing inefficiencies.

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