A single buyer-single supplier bargaining problem with asymmetric information : theoretical approach and software implementation

This paper is focused on the coordination of order and production policy between buyers and suppliers in supply chains. When a buyer and a supplier of an item work independently, the buyer will place orders based on his economic order quantity (EOQ). However, the buyer s EOQ may not lead to an optimal policy for the supplier. It can be shown that a cooperative batching policy can reduce total cost significantly. Should the buyer have the more powerful position to enforce his EOQ on the supplier, then no incentive exists for him to deviate from his EOQ in order to choose a cooperative batching policy. To provide an incentive to order in quantities suitable to the supplier, the supplier could offer a side payment. One critical assumption made throughout in the literature dealing with incentive schemes to influence buyer s ordering policy is that the supplier has complete information regarding buyer s cost structure. However, this assumption is far from realistic. As a consequence, the buyer has no incentive to report truthfully on his cost structure. Moreover there is an incentive to overstate the total relevant cost in order to obtain as high a side payment as possible. This paper provides a bargaining model with asymmetric information about the buyer s cost structure assuming that the buyer has the bargaining power to enforce his EOQ on the supplier in case of a break-down in negotiations. An algorithm for the determination of an optimal set of contracts which are specifically designed for different cost structures of the buyer, assumed by the supplier, will be presented. This algorithm was implemented in a software application, that supports the supplier in determining the optimal set of contracts

A Single Buyer-Single Supplier Bargaining Problem with Asymmetric Information – Theoretical Approach and Software Implementation

This paper is focused on the coordination of order and production policy between buyers and suppliers in supply chains. When a buyer and a supplier of an item work independently, the buyer will place orders based on his economic order quantity (EOQ). However, the buyer’s EOQ may not lead to an optimal policy for the supplier. It can be shown that a cooperative batching policy can reduce total cost significantly. Should the buyer have the more powerful position to enforce his EOQ on the supplier, then no incentive exists for him to deviate from his EOQ in order to choose a cooperative batching policy. To provide an incentive to order in quantities suitable to the supplier, the supplier could offer a side payment. One critical assumption made throughout in the literature dealing with incentive schemes to influence buyer’s ordering policy is that the supplier has complete information regarding buyer’s cost structure. However, this assumption is far from realistic. As a consequence, the buyer has no incentive to report truthfully on his cost structure. Moreover there is an incentive to overstate the total relevant cost in order to obtain as high a side payment as possible. This paper provides a bargaining model with asymmetric information about the buyer’s cost structure assuming that the buyer has the bargaining power to enforce his EOQ on the supplier in case of a break-down in negotiations. An algorithm for the determination of an optimal set of contracts which are specifically designed for different cost structures of the buyer, assumed by the supplier, will be presented. This algorithm was implemented in a software application, that supports the supplier in determining the optimal set of contracts.

Optimizing replenishment order quantities in uncoordinated supply chains

Many modern supply chains can be described as a series of uncoordinated suppliers. That is each supplier establishes their individual inventory and production policies on both the input and output sides. In these supply links there is minimal coordination between suppliers, and typically only prices and delivery guarantees are contracted. As a consequence, the inventory behavior and associated costs do not exhibit standard patterns. This makes it difficult to model and optimize these chains using classical inventory models. The common approach, therefore, for evaluating uncoordinated supply chains is to use Supply Chain Analytics software. These retrieve operational data from Enterprise Resource Planning (ERP) systems and then characterize the historical inventory performance behavior. Nearier (2008) developed a joint production inventory model for estimating inventory costs in uncoordinated chains as an alternative to supply chain analytics. They proposed a (Q, R, δ)2 relationship between each pair of sequential suppliers, where Q is the order quantity, R is the reorder level, and δ is the production or consumption rate. In this arrangement each part has two inventory locations: (i) on the output side of the seller, and (ii) on the input side of the buyer. hi this dissertation, the (Q, R, δ)2 model was extended. Three specific research tasks were accomplished in this regard. First, the inventory estimation accuracy of the original (Q, R, δ)2 model was improved. This was accomplished by deriving a more reliable estimate of the residual inventory at the end of each supply cycle. Further, a more accurate model of the inventory behavior in supply cycles where the seller has no production was developed. A discrete inventory simulation was used to demonstrate a significant improvement in the estimation accuracy, from a 10-30 % error range to within 5% error on average. Second, a prescriptive model for deriving the optimal Q when reducing inventory costs in a (Q, R, δ)2supply relationship was developed. From simulation studies, it was found that due to differences in production batch sizes, production rates, and replenishment order quantities, the inventory cost function exhibits a non-differentiable step-wise convex behavior. Further, the steps are observed to occur at integer ratios of Q and the buyer\u27s production batch. This behavior makes it difficult to analytically derive the optimal Q, which could occur at one of the step points or any intermediate point. A golden section based search heuristic for efficiently deriving the optimal Q was developed. Third, the robustness of Q to demand shifts was studied. A demand shift occurs wherever the mean demand jumps to a higher or lower level, similar to a moving average forecast. The demand shift range beyond, which there is significant deterioration in inventory costs and a change in the supply policy Q is justified, was determined Two supply policies were studied: (i) fixed delivery batch and (ii) fixed production period. For each stochastic demand shift behavior, a delivery batch size or production period that minimizes the total cost of both suppliers is selected

Coordinación de inventarios en una cadena de suministro a través de épocas comunes de resurtido bajo demanda dinámica considerando diversos modos de transporte y diferentes políticas de descuento en los precios de los productos y en las tarifas de tr

La administración eficiente de la cadena de suministro requiere la integración de diversas actividades logísticas. En particular, beneficios importantes incluyendo reducción de costes y mejoras en el nivel de servicio se pueden lograr coordinando las actividades de transporte y de administración de los inventarios. En esa dirección, se formularon tres modelos de optimización bicriterio (coste y nivel de servicio) que consideran simultáneamente la selección del modo de transporte y define la política de inventario cuando la demanda es determinista y variable en el tiempo. Un modelo está propuesto en el contexto no coordinado y dos están basados en la estrategia de coordinación Épocas Comunes de Resurtido; los modelos asumen un solo proveedor que abastece diferentes productos, utilizando tres modos de transporte (rápido, medio y lento) a un solo cliente. Se construyen las fronteras de eficiencia para los dos modelos coordinados basado en los términos del comercio internacional (Incoterms) ExWork (ExW) y Duty Delivery Paid (DDP). Para ilustrar la aplicabilidad del modelo, se considera un caso de estudio específico en el sector de la automoción.Jiménez Sánchez, JE. (2006). Coordinación de inventarios en una cadena de suministro a través de épocas comunes de resurtido bajo demanda dinámica considerando diversos modos de transporte y diferentes políticas de descuento en los precios de los productos y en las tarifas de tr [Tesis doctoral no publicada]. Universitat Politècnica de València. https://doi.org/10.4995/Thesis/10251/1906Palanci