Choosing a transport contract over multiple periods

We offer a shipper and a carrier the choice among three contracts in which to frame their relationship. Both can also take recourse in the transport spot market. Demand and price on the spot market are dependent exogenous stochastic processes. We model the outcome of this endogenous choice of contract. The results, given in closed form, are different from those presented in the literature. Using numeric instances, we show how a choice is made and which contract would be preferred. Comparison on the variance of the economic returns are offered. The conclusions are applicable when the carrier is not capacity constrained.

How can we improve the performance of supply chain contracts? An experimental Study

Although optimal forms of supply chain contracts have been widely studied in the literature, it has also been observed that decision makers fail to make optimal decisions in these contract setups. In this research, we propose different approaches to improve the performance of supply chain contracts in practice. We consider revenue sharing and buyback contracts between a rational supplier and a retailer who, unlike the supplier, is susceptible to decision errors. We propose five approaches to improve the retailer’s decisions which are in response to contract terms offered by the supplier. Through laboratory experiments, we examine the effectiveness of each approach. Among the proposed approaches, we observe that offering free items can bring the retailer’s effective order quantity close to the optimal level. We also observe that the retailer’s learning trend can be improved by providing him with collective feedbacks on the profits associated with his decisions

Analysis of the Project Supply Chains: Coordination and Fair Allocation

This research investigates how project contracts can coordinate the supply chain between a project manager and contractor and if the solutions can be ensured as equitable. The main features of this type of supply chain are the trade-offs between the selection of a higher rate of resource consumption with a consequent higher cost to the contractor and a lower rate of resource consumption leading to later delivery and a reduction of the project-reward to the project manager. This broader problem could lead to a coordination problem for the overall supply chain. This research proposed a solution to this broader problem in two different scenarios: Take it or leave it scenario and negotiation scenario. Finally, the fair allocation of the risks and benefits and the related decision-making issues are addressed as one of the behavioural barriers to the supply chain coordination. The coordination issues in a take it or leave it scenario are addressed using time-based and fixed price project contracts using Stackelberg games. Models of coordination were proposed with time-based contracts, but the fixed price contracts failed to coordinate. The coordination problems in negotiation scenario are addressed with the Nash's bargaining, the Kalai Smorodinsky bargaining, and the utilitarian approach. A cost plus contract has been found to dominate the solutions over any cost sharing contract and fixed price contract for Nash's bargaining and Kalai Smorodinsky bargaining cases. Finally, the issues of fairness of allocation of risks and benefits as one of the challenges of supply chain coordination, have been investigated. The fixed price contracts were found to coordinate the supply chain under consideration alongside the time-based contracts if the members had fairness concern. Some of the key features of this research include the incorporation of various probability distributions for the project completion time and cost, the inclusion of various forms of risk preference, and addressing the challenges of fair allocation in project supply chains

Consumer Returns Policies and Supply Chain Performance

This paper develops a model of consumer returns policies. In our model, consumers face valuation uncertainty and realize their valuations only after purchase. There is also aggregate demand uncertainty, captured using the conventional newsvendor model. In this environment, consumers decide whether to purchase and then whether to return the product, whereas the seller sets the price, quantity, and refund amount. Using our model, we study the impact of full returns policies (e.g., using 100% money-back guarantees) and partial returns policies (e.g., when restocking fees are charged) on supply chain performance. Next, we demonstrate that consumer returns policies may distort incentives under common supply contracts (such as manufacturer buy-backs), and we propose strategies to coordinate the supply chain in the presence of consumer returns. Finally, we explore several extensions and demonstrate the robustness of our findings

Analysis of futures and spot electricity markets under risk aversion.

We analyze the procurement problem in the electricity supply chain, focusing on the interaction between futures and spot prices. The supply chain network analyzed in our study includes risk-averse generators and retailers, both with the ability to use conditional value at risk (CV@R) in their decision processes. In this supply chain, the futures price is computed to clear the futures market, without imposing the constraint that the expected spot price equals the futures price. As major methodological contributions: we compute the Nash equilibrium of the problem using CV@R and considering conjectural variations; we derive analytical relationships between the futures and the spot market outcomes and study the implications of demand and marginal cost uncertainty, as well as the level of the players' risk aversion, on market equilibrium; we introduce the concept of risk-adjusted expectation to derive the futures market price as a function of the players' expected losses or profits in the spot market; and we use consistent spot and wholesale price derivatives to calculate the players' reaction functions. Finally, we illustrate our model with several numerical examples in the context of the Spanish electricity market, studying how the shape of the forward curve and the relationship between spot and futures prices depend on seasonality, risk aversion, generators' market power, and hydrological resources. Surprisingly we observed that risk aversion increases the profit and reduces firms' risk, and that the consumer utility is higher in the scenarios in which retailers behave a la Cournot in the wholesale market

The Effect of Behavioral Biases on Supply Chain Decisions

Traditional work in operations management has focused on topics such as supply chain contracts and pricing, studying design of efficient contracts and optimal pricing policies. After these optimal solutions and recommendations are derived, they must be implemented properly by managers in practice. Because this process is subject to behavioral decision biases, work in behavioral operations management has begun to connect theories of decision biases to behavior in classical operations management. My dissertation focuses in this area by studying how decisions are made by suppliers and retailers in B2B settings. In essay one, I investigate the effect of effort-dependent demand on supply chain contracts. It is found that the actual cost of effort affects the retailer's optimal level of effort and subsequently determines when a supplier should prefer a wholesale price contract to a buyback contract. As the retailer's cost of effort increases, the retailer's optimal level of effort decreases, leading the supplier to prefer the wholesale price contract. It is verified experimentally that retailer and supplier decisions are driven by cost of retailer effort. Furthermore, I demonstrate that suppliers' contract preferences are influenced by effort cost, not expected profit. In essay two, I look at the link between two supply chain decisions that have previously not been connected before. In this this essay, I study how the contract type (wholesale price or buyback) offered to the retailer affects his decision about which product to stock, particularly when one product is obviously riskier than another. I find, experimentally, that while contract type should make no difference in preferences between a safe and risky product, the retailer displays markedly different preferences arcoss contract type. I propose that this difference in preference structure can be explained by a model that incorporates a Prospect Theory weighting function. Finally, I demonstrate experimentally that this behavioral model of choice explains retailer product choice both when making the isolated product choice decision and the joint product/quantity decision

Buyers’ Alliances for Bargaining Power

We provide a novel explanation as to why forming an alliance of buyers (or sellers) across separate markets can be advantageous when input prices are determined by bargaining. Our explanation helps to understand the prevalence of buyer cooperatives among small and medium sized firms. ZUSAMMENFASSUNG - (Verhandlungsmacht durch Käuferkooperationen) Dieses Papier entwickelt eine neue Erklärung dafür, warum Zusammenschlüsse zwischen Käufern (oder Verkäufern), die in unterschiedlichen Märkten aktiv sind, deren Verhandlungsmacht stärken können. Unser Ansatz kann unter anderem erklären, warum sich kleinere und mittlere Unternehmen oft zu Einkaufsgenossenschaften zusammenschließen.Nash bargaining solution, alternating-offer bargaining, bargaining power, buyer power, cooperatives, input markets.

Coordinating a Supply Chain with Risk-Averse Agents under Demand and Consumer Returns Uncertainty

This paper examines the optimal order decision in a supply chain when it faces uncertain demand and uncertain consumer returns. We build consumer returns model with decision-makers’ risk preference under mean-variance objective framework and discuss supply chain coordination problem under wholesale-price-only policy and the manufacturer’s buyback policy, respectively. We find that, with wholesale price policy, the supply chain cannot be coordinated whether the supply chain agents are risk-neutral or risk-averse. However, with buyback policy, the supply chain can be coordinated and the profit of the supply chain can be arbitrarily allocated between the manufacturer and the retailer. Through numerical examples, we illustrate the impact of stochastic consumer returns and the supply chain agents’ risk attitude on the optimal order decision

Production costs, scope economies, and multi-client outsourcing under quantity competition

Two game models are developed based on production costs and scope economies to investigate the widely observed multi-client outsourcing (MCO) phenomenon. Analytical results demonstrate that outsourcers’ high in-house production costs and the advantage of scope economies motivate firms to outsource collectively to an independent vendor. Under certain conditions, if both firms make their outsourcing decisions simultaneously, collective outsourcing is one of the two equilibria; if both firms make decisions sequentially, collective outsourcing becomes the unique equilibrium. Furthermore, the comparative statics of the critical degree of scope economies are examined for the occurrence of MCO with regard to diverse market parameters. Finally, it is proved that market prices decrease as the degree of scope economies increases when MCO occurs. This research helps explain some widely observed phenomena such as malls, supply chain cities, and the China price

Contract design and supply chain coordination in the electricity industry.

In this article we propose a model of the supply chain in electricity markets with multiple generators and retailers and considering several market structures. We analyze how market design interacts with the different types of contract and market structure to affect the coordination between the different firms and the performance of the supply chain as a whole. We compare the implications on supply chain coordination and on the players’ profitability of two different market structures: a pool based market vs. bilateral contracts, taking into consideration the relationship between futures and spot markets. Furthermore, we analyze the use of contracts for differences and two-part-tariffs as tools for supply chain coordination. We have concluded that there are multiple equilibria in the supply chain contracts and structure and that the two-part tariff is the best contract to reduce double marginalization and increase efficiency in the management of the supply chain