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Author: Cuihong Li
Publisher:
ISBN:
Category :
Languages : en
Pages : 32
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Book Description
We consider a buyer sourcing from multiple competing suppliers who exert cost reduction efforts before procurement contracts are awarded. The supply chain is subject to the classic hold-up problem--as the lack of a contract commitment hinders suppliers' incentives to make investment upfront--complicated with supplier competition. With deterministic cost-reduction outcomes, suppliers will not exert any effort if this effort is observable, and a pure strategy equilibrium does not exist if the effort is unobservable. We analyze the mixed strategy equilibrium with unobservable supplier effort, in which suppliers randomize their efforts and the buyer designs an optimal procurement mechanism. We show that the optimal procurement mechanism can be implemented by a conventional single-price reverse auction with a random reserve price. The mixed strategy of supplier effort generates endogenous information asymmetry on supplier costs that provides suppliers with information rent, which sustains their efforts. The endogenous information asymmetry improves effort efficiency (by inducing positive supplier effort) yet introduces trade inefficiency (by causing the possible failure of trade between the parties). While increasing supplier competition (measured by the number of suppliers) hurts the effort efficiency, it improves the trade efficiency. As a result, the buyer is always better off introducing supplier competition by including more than one supplier in the supply base. However, the desired supply base size (number of suppliers) depends on the product revenue: for high-margin goods, the optimal size is achieved with two suppliers, whereas for low-margin goods, a larger supply base is better for the buyer. We show that the result based on deterministic cost reduction can be established as a limit of the case when uncertainty in cost reduction exists and shrinks to null. Our study helps to understand the impact of supplier competition when supply chain parties deliberately make their actions unpredictable to avoid being held up. The findings provide managerial guidance on procurement auction and supply base designs.
Author: Cuihong Li
Publisher:
ISBN:
Category :
Languages : en
Pages : 32
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Book Description
We consider a buyer sourcing from multiple competing suppliers who exert cost reduction efforts before procurement contracts are awarded. The supply chain is subject to the classic hold-up problem--as the lack of a contract commitment hinders suppliers' incentives to make investment upfront--complicated with supplier competition. With deterministic cost-reduction outcomes, suppliers will not exert any effort if this effort is observable, and a pure strategy equilibrium does not exist if the effort is unobservable. We analyze the mixed strategy equilibrium with unobservable supplier effort, in which suppliers randomize their efforts and the buyer designs an optimal procurement mechanism. We show that the optimal procurement mechanism can be implemented by a conventional single-price reverse auction with a random reserve price. The mixed strategy of supplier effort generates endogenous information asymmetry on supplier costs that provides suppliers with information rent, which sustains their efforts. The endogenous information asymmetry improves effort efficiency (by inducing positive supplier effort) yet introduces trade inefficiency (by causing the possible failure of trade between the parties). While increasing supplier competition (measured by the number of suppliers) hurts the effort efficiency, it improves the trade efficiency. As a result, the buyer is always better off introducing supplier competition by including more than one supplier in the supply base. However, the desired supply base size (number of suppliers) depends on the product revenue: for high-margin goods, the optimal size is achieved with two suppliers, whereas for low-margin goods, a larger supply base is better for the buyer. We show that the result based on deterministic cost reduction can be established as a limit of the case when uncertainty in cost reduction exists and shrinks to null. Our study helps to understand the impact of supplier competition when supply chain parties deliberately make their actions unpredictable to avoid being held up. The findings provide managerial guidance on procurement auction and supply base designs.
Author: Cuihong Li
Publisher:
ISBN:
Category :
Languages : en
Pages : 33
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Book Description
Buyers have two levers to enhance their supply base performance: fostering supplier competition and inducing suppliers to improve. The competition-improvement relation between the two levers has important implications for supply base design. We study a buyer facing two potential suppliers that can exert cost-reduction efforts, examining the interplay of supplier competition and supplier cost improvement under various information structures (i.e., the supplier effort is observable or unobservable) and commitment capabilities (i.e., the buyer may not commit, or may commit to a full or partial procurement mechanism, before suppliers exert efforts). We find that the two identical suppliers may choose unequal efforts, resulting in an asymmetric equilibrium outcome that enhances the performance of dual sourcing. Moreover, the competition-improvement relation depends on the effort observability. Whereas supplier competition always leads to lower improvement effort when the effort is unobservable, it may induce higher effort when the effort is observable. Thus, a tradeoff between supplier competition and supplier effort is not always necessary in supply base design. Comparing the observable- and unobservable-effort cases, we demonstrate a detrimental effect of supplier effort observability on the buyer profits. Finally, we show that more commitment expands the presence of asymmetric equilibria, enhancing dual sourcing, and the partial commitment strengthens the positive effect of competition on observable efforts while maintaining the detrimental effect of effort observability.
Author: Guido Vogt
Publisher: Springer Science & Business Media
ISBN: 3642201326
Category : Business & Economics
Languages : en
Pages : 208
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Book Description
Information sharing is frequently promoted as a mean to improve the supply chain performance. This work shows the results of behavioral experiments, in which the participants share private information in order to influence the contract terms in a Just-in-Time environment. It is shown that the impact of information sharing is ambiguous, and dependent on several factors, such as contract flexibility and complexity or the interacting behavioral types. The experimental results form the basis for a behavioral principal-agent model that gives valuable insights on how the interaction of trust, trustworthiness and the information sharing strategy impacts the supply chain performance.
Author: Lusheng Shao
Publisher:
ISBN:
Category :
Languages : en
Pages : 35
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Book Description
Driven by increasing costs in the traditionally-regarded low-cost manufacturing bases (e.g., China), many firms have started to outsource their production to the regions of even lower costs (e.g., Southeast Asia). However, a new environment may involve higher cost uncertainty and severer information asymmetry. Motivated by these observations, we consider a sourcing game where competing firms choose between a supplier with transparent certain cost (type-C supplier) and a supplier with potentially lower but less transparent, uncertain cost (type-U supplier). We characterize the equilibrium of the sourcing game and study how different parameters affect the firms' sourcing strategy and profit performance. First, we find that due to information asymmetry, a large market size can make firms prefer the C-supplier to the U-supplier even if the latter has a lower average cost. Second, reducing the cost uncertainty or improving the signal accuracy of the U-supplier does not necessarily make it more attractive to sourcing firms, which cautions the suppliers when making efforts to mitigate cost uncertainty or better cost estimation. Third, higher competition intensity leads the diversified sourcing strategy to be more likely adopted under certain conditions. Interestingly, increasing the cost of the C-supplier (e.g., a cost hike in China) may make both sourcing firms better off because it can lead to a new sourcing equilibrium. Finally, this paper contributes to the mechanism design literature by showing that the direction of quantity distortion under the optimal competitive mechanism differs from that under the traditional monopolistic setting.
Author: Junhyun Bae
Publisher:
ISBN:
Category :
Languages : en
Pages : 195
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Book Description
In business, most of the decisions are made in the context of strategic interactions that inevitably lead to intertwined individual incentives. From consumers to upstream firms in supply chains, people make decisions for their own best interests as suppliers, manufacturers, and consumers. In this dissertation, I study a firm's strategic decisions in the areas of the operations-marketing interface and supply chain management in order to predict and understand firms' behaviors in a competitive setting or in the presence of information asymmetry. In Chapter 1, I first examine a price competition problem (e.g., promotion wars) in which customer satisfaction depends on a firm's available service capacity. Price competition has been commonly observed in the online retail industry. Firms cut their prices despite incurring an immediate financial loss, hoping to lock in customers for future profit. While such a practice is prevalent, our understanding of the role of service capacity in firms' price promotion strategy is lacking, especially when customers' purchase experience may be negatively affected by firms' limited service capacity. I revisit the classic two-firm, two-period price competition model, adding a switching cost and showing that a firm's price strategies depend on the level of the competitor's service capacity. In Chapter 2, I extend the previous model to a capacity-risk problem in which capacity is stochastic and the information about a firm's own capacity capability could be private. I solve for the Bayesian Nash equilibrium to demonstrate the firm's price decisions in the presence of information asymmetry. This model verifies that knowing the capacity information will benefit firms but can also dramatically affect a firm's price decisions with respect to service capacity capability (e.g., superior capacity and inferior capacity). In Chapter 3, I finally study a problem that is common in both practice and research - evaluating capacity decisions in a supply chain in the presence of persistent information asymmetry between a firm and its suppliers. I solve for the Perfect Bayesian Nash equilibrium to characterize a firm's strategic capacity decisions, which can signal the firm's demand type. I find that information asymmetry can harm supply chain efficiency. As a solution, I design a well-structured equity sharing contract to improve supply chain efficiency as well as to reduce suppliers' risks.
Author: Zhibin (Ben) Yang
Publisher:
ISBN:
Category :
Languages : en
Pages : 37
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Book Description
We study a buyer's strategic use of a dual-sourcing option when facing suppliers possessing private information about their disruption likelihood. We solve for the buyer's optimal procurement contract. We show that the optimal contract can be interpreted as the buyer choosing between diversification and competition benefits. Better information increases diversification benefits and decreases competition benefits. Therefore, with better information the buyer is more inclined to diversify. Moreover, better information may increase or decrease the value of the dual-sourcing option, depending on the buyer's unit revenue: for large revenue, the buyer uses the dual sourcing option for diversification, the benefits of which increase with information; for small revenue, the buyer uses the dual sourcing option for competition, the benefits of which decrease with information. Surprisingly, as the reliability of the entire supply base decreases, the buyer may stop diversifying under asymmetric information (to leverage competition), while it would never do so under symmetric information. Finally, we analyze the effect of codependence between supply disruptions. We find that lower codependence leads the buyer to rely less on competition. Because competition keeps the information costs in check, a reduction in supplier codependence increases the buyer's value of information. Therefore, strategic actions to reduce codependence between supplier disruptions should not be seen as a substitute for learning about suppliers' reliabilities.
Author: Hedayat Alibeiki
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
"Channel parties in today's competitive supply chains are increasingly becoming asymmetric in their power and the level of information they possess regarding several important aspects of their businesses. Even though these asymmetries can be beneficial for some parties, they might create frictions towards other parties' regular practice and profitability. Studying these asymmetries can be helpful for all parties when making their strategic decisions. In particular, it helps weak and uninformed players to improve their strategies on how to respond to the additional power of their partners or competitors in the market, while the dominant players might want to reinforce these asymmetries as sources and prerequisites for their competitive advantages in the marketplace. This dissertation examines asymmetries in operations and supply chain management through two specific applications, which has resulted in two essays. The first one focuses on the impacts of market power and cost asymmetries in retail operations. More specifically, it analyzes the effects of superior cost advantage and price leadership possessed by a dominant retailer on his assortment choice. Using several game-theoretical models, this essay aims to explain the asymmetry-related causes for the retail assortment reduction, a practice taken by many big-box retailers in some product categories. The second essay is related to the information asymmetry in sourcing and supply management. More precisely, it looks at the buyers' private information regarding the quality scores of their suppliers in price-plus buyer-determined procurement (reverse) auctions. The general goal in this essay is to understand the informational and strategic implications of non-price attributes in procurement auctions as an increasingly popular sourcing mechanism. Using the Bayesian Nash Equilibrium solution concept, this essay provides normative recommendations to the buyers on when and how to share this information with the suppliers. In different ways, both essays support the idea that information and power asymmetries significantly change the motivation and action of channel partners in their operational decisions." --
Author: Manoj Kumar Tiwari
Publisher: Springer Nature
ISBN: 9819910196
Category : Business & Economics
Languages : en
Pages : 402
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Book Description
This book provides practical insights into applications of the state-of-the-art of Machine Learning and Artificial Intelligence (AI) for solving intriguing and complex problems in procurement and supply chain management. The application domain includes perishable food supply chain, steel price prediction, electric vehicle charging infrastructure design, contract price negotiation, reverse logistics network design, and demand forecasting. Further, the book highlights the advanced topics in the procurement field, like AI in green procurement and e-procurement in the pharma sector. Furthermore, the book covers applications of well-established methodologies such as heuristics, optimization, game theory, and MCDM based on the nature of the problem. The inclusion of the vaccine supply chain digital twin and blockchain-based procurement signals the significance of the book. This book is a comprehensive guide for industry professionals to understand the power of data analytics, enabling them to improve efficiency and effectiveness in the procurement and supply chain sectors.
Author: Manfred Fuchs
Publisher: Springer Nature
ISBN: 3662658704
Category : Business & Economics
Languages : en
Pages : 337
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Book Description
This textbook for students and practitioners offers answers to the most important questions and challenges of international management. The main topics are presented and discussed on three levels: (a) the macroeconomic and institutional environment of the global economy, (b) the international firms embedded as players in this environment, and (c) the actual management decisions. The focus is placed both on the characteristics of the individual subject areas (macro-, meso- and microperspective) and on the interdependent connections between these areas. The main interest of this book lies in an application-oriented analysis of the central strategic management decisions in internationalizing companies. This textbook has been recommended and developed for university courses in Germany, Austria and Switzerland.
Author: R. David Nelson
Publisher: Simon and Schuster
ISBN: 0743214544
Category : Business & Economics
Languages : en
Pages : 360
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Book Description
Every day companies leave billions of dollars in invisible, unrealized savings on the table because of poor supply chain management practices. Now supply management experts Dave Nelson, Patricia E. Moody, and Jonathan Stegner show not only how leading companies recoup these savings through their mastery of target costing, value engineering, and supplier development, but how supply chain management -- the discipline of acquiring and moving material -- has become a manufacturing company's hottest competitive weapon. Based on a survey of 247 purchasing managers and more than 1,000 hours of interviews and on-site visits, the authors have selected ten top firms whose supply management pioneers excel at twenty "best practices." With cases and stories, Nelson, Moody, and Stegner show how these leading-edge purchasing departments at American Express, SmithKline Beecham, DaimlerChrysler, Harley-Davidson, Honda of America, IBM, John Deere, Whirlpool, Flextronics, and Sun Microsystems have put into place pathbreaking processes and procedures. Here, for example, described in step-by-step detail, are Chrysler's SCORE program and Honda's strategic sourcing strategy that saved the companies billions. The book also includes a crucial section on the next stage of supplier development that will involve the sourcing and allocation of ideas as well as materials. The authors provide concrete, practical steps to improvement that any supply chain manager can take to successfully implement these best practices. The Purchasing Machine will be required reading for logistics, purchasing, and procurement managers in hundreds of thousands of companies. The authoritative nature of the authors' source material is certain to make this the single most important and practical reference on best purchasing practices for years to come.
