A coordination mechanism for supply chains with capacity expansions and order-dependent lead times

This paper considers a supply chain consisting of a retailer for short life cycle products facing stochastic customer demand and a manufacturer that initiates production upon receipt of retail orders. Departing from the common view of the newsvendor problem, we assume that the delivery lead time is not fixed, but that both the retailer and the manufacturer have the option to shorten it. Shorter lead times enable the retailer to place orders closer to the start of the selling season where additional information on customer preferences has become available, reducing demand uncertainty. In the work at hand, lead time is assumed to depend on the order quantity, on the supplier's production capacity, and a fixed transportation delay. This paper proposes a model for determining the optimal order quantity and production capacity in centralized and decentralized settings. For the uncoordinated case, we show that if the retailer's ability to gather and analyze additional demand information is revealed to the manufacturer, the arising information asymmetry between the two parties can aggravate the double marginalization effect and, in turn, erode supply chain efficiency. In a coordinated supply chain, however, both parties have an incentive to align both order quantity and investments in lead time reduction. To coordinate the decentralized supply chain, we propose a buy-back contract that helps to leverage supply chain profitability. We conclude with an outlook on future research opportunities

Book Review: Supply Chain’s Flexibility – A Real Options Approach

This book contains of the investigation is about the process of decision making in supply chain management using a real options analysis framework. Specifically, the authors address issues regarding the optimal inventory level to hedge against demand uncertainties; the timing for equipment capacity implementation under market product mix complexity; the timing for workforce capacity reinforcement aiming market service requirements; and the decisions between integration and outsourcing in an uncertainty environment. Discrete and continuous time methodologies were used to identify the optimal value and timing of the options to adopt, when the demand is stochastic. Additionally, the effect of market requirements, such as product mix complexity and service level, were also taken into consideration. The demand is modeled under different stochastic processes; the impact of unexpected shocks is also explored, which enhances the generalization of the models to different business conditions. The applicability of the models enables the diversification and enrichment of the literature on the real options approach, within supply chain concept. Flexible inventory levels and the flexible capacity are supply chain features that can be used to deal with demand uncertainty

Inventory drivers in a pharmaceutical supply chain

In recent years, inventory reduction has been a key objective of pharmaceutical companies, especially within cost optimization initiatives. Pharmaceutical supply chains are characterized by volatile and unpredictable demands –especially in emergent markets-, high service levels, and complex, perishable finished-good portfolios, which makes keeping reasonable amounts of stock a true challenge. However, a one-way strategy towards zero-inventory is in reality inapplicable, due to the strategic nature and importance of the products being commercialised. Therefore, pharmaceutical supply chains are in need of new inventory strategies in order to remain competitive. Finished-goods inventory management in the pharmaceutical industry is closely related to the manufacturing systems and supply chain configurations that companies adopt. The factors considered in inventory management policies, however, do not always cover the full supply chain spectrum in which companies operate. This paper works under the pre-assumption that, in fact, there is a complex relationship between the inventory configurations that companies adopt and the factors behind them. The intention of this paper is to understand the factors driving high finished-goods inventory levels in pharmaceutical supply chains and assist supply chain managers in determining which of them can be influenced in order to reduce inventories to an optimal degree. Reasons for reducing inventory levels are found in high inventory holding and scrap related costs; in addition to lost sales for not being able to serve the customers with the adequate shelf life requirements. The thesis conducts a single case study research in a multi-national pharmaceutical company, which is used to examine typical inventory configurations and the factors affecting these configurations. This paper presents a framework that can assist supply chain managers in determining the most important inventory drivers in pharmaceutical supply chains. The findings in this study suggest that while external and downstream supply chain factors are recognized as being critical to pursue inventory optimization initiatives, pharmaceutical companies are oriented towards optimizing production processes and meeting regulatory requirements while still complying with high service levels, being internal factors the ones prevailing when making inventory management decisions. Furthermore, this paper investigates, through predictive modelling techniques, how various intrinsic and extrinsic factors influence the inventory configurations of the case study company. The study shows that inventory configurations are relatively unstable over time, especially in configurations that present high safety stock levels; and that production features and product characteristics are important explanatory factors behind high inventory levels. Regulatory requirements also play an important role in explaining the high strategic inventory levels that pharmaceutical companies hold

Capacity Building for Pro-Poor Trade: Learning from the Limitations in Current Models

human development, aid, trade, security

Taming the Business Cycles in Commercial Aviation: Trade-space analysis of strategic alternatives using simulation modeling

We investigate the effectiveness of strategic alternatives that are designed to dampen the cyclicality manifest in the commercial aviation related industries. The constituent enterprises of the commercial aviation system exhibit managerial and operational independence and have diverse value functions that often viewed the enterprises to view their competition as a zero-sum game. We argue that this need not always be the case; in the commercial aviation system both airline and airframe manufacturers constituents would benefit from a steadier influx of aircraft that counters the current situation that is characterized by relatively stable demand growth rate for air travel while airline profitability and aircraft ordering fluctuate intensely. In order to identify and evaluate the symbiotic potential, we use a system dynamics model of commercial aviation. After testing several individual strategic alternatives, we find that capacity management is key to cycle moderation for non-collusive strategies. Comparing faster aircraft deliveries to semi-fixed production schedules among other alternatives shows only the latter alternative to be Pareto efficient

Vertical Structures in the Global Liquefied Natural Gas Market: Vertical Structures in the Global Liquefied Natural Gas Market: Empirical Analyses Based on Recent Developments in Transaction Cost Economics

During the last decade, the global liquefied natural gas (LNG) market altered substantially. Significant investments have been realized, traded volumes increased and contracting structures gained in flexibility. Various governance forms co-exist, including the poles of spot market transactions and vertical integration as well as numerous hybrid forms such as long-term contracts, joint ventures, and strategic partnerships. This dissertation empirically investigates, based on transaction cost economics and recent extensions thereof, which motivations drive companies towards the choice of hierarchical governance forms. First, the likelihood of vertical integration and the impact of inter-organizational trust as a shift parameter accounting for differences in the institutional environment are analyzed. Estimation results confirm transaction cost economics by showing that relationship-specific investments in an uncertain environment drive LNG companies to invest in successive stages along the value chain. Furthermore, the presence of inter-organizational trust increases the likelihood of less hierarchical governance modes. Second, alternative theories of the firm are linked in order to explain the menu of strategic positions recently observed in this dynamic market. Estimation results support the positioning-economizing perspective of the firm. The three strategic choices of target market position, resource profile, and organizational structure are interdependent. Third, the determinants of optimal contract length as a trade-off between the minimization of transaction costs due to repeated bilateral bargaining and the risk of being bound in an inflexible agreement in uncertain environments is discussed. Estimation results show that the presence of high asset specificity results in longer contracts whereas the need for flexibility in today’s LNG market supports shorter agreements. When firms have experience in bilateral trading, contract duration decreases. In addition, countries heavily reliant on natural gas imports via LNG are often willing to forgo some flexibility in favor of supply security. Contracts dedicated to competitive downstream markets on average are shorter than those concluded with customers in non-liberalized importing countries

Business Responses to a Pandemic in a Global Economy: Case Studies Detailing the Impact of COVID-19 on Medical Supply Chains

This paper details the best practices of three multinational medical supply companies in their efforts to overcome supply chain disruptions stemming from the coronavirus pandemic. Through a series of case studies on the supply chain responses of 3M, Becton Dickinson, and Honeywell between January and December of 2020, this paper highlights the strengths and weaknesses of their respective supply chains, company cultures, and mitigation strategies and provides useful insight into what actions medical supply companies will need to make going forward to prevent and reduce supply chain disruptions amidst future global pandemics

Supply chain business modelling

The developed work is motivated by the hypothesis that the presented Supply Chain Business Model is a practical and comprehensive approach to support not only operational day-to-day business decisions, but most importantly strategic and long term decisions that may define the success and the longevity of a business. Conceptually, the Business Supply Chain Model developed in this thesis replicates the behaviour and decision making of the different agents in a supply chain, and an Optimisation Module determines the optimised parameters that maximise the overall business profit, whatever scenario it may be. In the optimisation module, a Genetic Algorithm was used to determine the best equation parameters for each individual agent that optimise the overall supply chain profit. Furthermore, several business case-scenarios are presented and the findings highlighted. These case-scenarios prove that: the HC model is robust when subjected to predictable or unpredictable causes of variability; the bullwhip effect can be reduced significantly by applying GA as the optimisation tool; the improvement of profits needs to be evaluated at a global scale, independently of the individual agents’ profit; impact of supply shortages in the SC ; retail expansion analysis; delivery patterns change impact in profitability; impact of sourcing decisions in the SC profitability; model suitability for seasonal vs. non-seasonal products. The SC Modelling framework generic and globalising approach means that is easily applied and transposed to any other business realities and it can be easily changed to reflect other SC scenarios. The costing model associated means that, at any point in the network, all costs and profits can be easily measured. For the first time the shelf-life of a product captured and losses of product due to BBE dates, quantified. In this model the optimisation methodology runs parallel to the developed simulation tool, so the optimisation should be only run for new scenarios