Joint Economic Lot Sizing Optimization in a Supplier-Buyer Inventory System When the Supplier Offers Decremental Temporary Discounts

This research discusses mathematical models of joint economic lot size optimization in a supplier-buyer inventory system in a situation when the supplier offers decremental temporary discounts during a sale period. Here, the sale period consists of n phases and the phases of discounts offered descend as much as the number of phases. The highest discount will be given when orders are placed in the first phase while the lowest one will be given when they are placed in the last phase. In this situation, the supplier attempts to attract the buyer to place orders as early as possible during the sale period. The buyers will respon these offers by ordering a special quantity in one of the phase. In this paper, we propose such a forward buying model with discount-proportionally-distributed time phases. To examine the behaviour of the proposed model, we conducted numerical experiments. We assumed that there are three phases of discounts during the sale period. We then compared the total joint costs of special order placed in each phase for two scenarios. The first scenario is the case of independent situation – there is no coordination between the buyer and the supplie-, while the second scenario is the opposite one, the coordinated model. Our results showed the coordinated model outperform the independent model in terms of producing total joint costs. We finally conducted a sensitivity analyzis to examine the other behaviour of the proposed model

Coordinating pricing and inventory decisions in a multi-level supply chain: A game-theoretic approach

This paper concerns coordination of enterprise decisions such as suppliers and components selection, pricing and inventory in a multi-level supply chain composed of multiple suppliers, a single manufacturer and multiple retailers. The problem is modeled as a three-level dynamic non-cooperative game. Analytical and computational methods are developed to determine the Nash equilibrium of the game. Finally, a numerical study in computer industry is conducted to understand the influence of the market scale parameter and the components selection strategy on the optimal decisions and profits of the supply chain as well as its constituent members. Several research findings have been obtained. © 2010 Elsevier Ltd.link_to_subscribed_fulltex

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

Inflation: Its Mechanics and Welfare Costs

macroeconomics, inflation

VaR and Liquidity Risk.Impact on Market Behaviour and Measurement Issues.

Current trends in international banking supervision following the 1996 Amendment to the Basel Accord emphasise market risk control based upon internal Value-at-risk (VaR) models. This paper discusses the merits and drawbacks of VaR models in the light of their impact on market liquidity. After a preliminary review of basic concepts and measures regarding market risk, market friction and liquidity risk, the arguments supporting the internal models approach to supervision on market risk are discussed, in the light of the debate on the limitations and possible enhancements of VaR models. In particular, adverse systemic effects of widespread risk management practices are considered. Risk measurement models dealing with liquidity risk are then examined in detail, in order to verify their potential for application in the field. We conclude that VaR models are still far from effectively treating market and liquidity risk in their multi-faceted aspects. Regulatory guidelines are right in recognising the importance of internal risk control systems. Implementation of those guidelines might inadvertently encourage mechanic application of VaR models, with adverse systemic effects.

Economic ordering and payment policies under progressive payment schemes and time-value of money

Trade credits have received considerable attention in recent years and have become one of the most important sources of short-term funding for many companies. The paper at hand studies the optimal ordering and payment policies of a buyer assuming that the supplier offers a progressive interest scheme. The contribution to the literature is twofold. First, the different financial conditions of the companies involved are taken into account by assuming that the credit interest rate of the buyer may, but not necessarily has to, exceed the interest rate charged by the supplier. In addition, the time-value of money is considered in this scenario which is relevant when trade credit terms are valid for a long period of time and payment flows need to be evaluated by their net present value to ensure long-term profitability. The models proposed enable decision makers to improve ordering and payment decisions and the results reveal that taking into account the temporal allocation of payments, the prevailing interest relation influences replenishment policies significantly

The Dutch Energy Markets in 2009: Target Scenario – Obstacles – Measures

Competition on the wholesale gas market is still in its early stages. Measures have already been put in place to eliminate some shortcomings, these are the new market model and the market-based balancing system. Both of these are the result of the Gas Letter from the Minister and the underlying TTF advice from the NMa. These measures facilitate a development towards more competition. But for a better functioning market the commitment of all market participants is required. Gasterra, the exclusive marketer of Groningen gas, has a key responsibility here. Energy suppliers should be able to obtain gas on the TTF in the required periods and quantities. Otherwise the development of the wholesale gas market will just be stalled further.Monitoring, electricity, gas, competition, infrastructure

Capacity flexibility of a maintenance service provider in specialized and commoditized system environments

In the last decades, after-sales services have become increasingly important since service is a source of differentiation as well as a lucrative business opportunity due to the substantial amount of revenue that can be generated from the products in use throughout their life cycle. Following this trend, many after-sales service providers have emerged in the market or evolved as semi-autonomous units within the OEM (Original Equipment Manufacturer) companies. In this thesis, we focus on the maintenance aspect of after-sales services. We assume that a maintenance service provider (MSP) is running a repair shop in an environment with numerous operating systems that are prone to failure. The MSP is responsible for keeping all systems in an environment up and working. We mainly focus on two types of environments: 1) Specialized System Environment 2) Commoditized System Environment. The systems in the first environment are highly customized. They are designed and built specifically following the owners’ precise requirements. Defense systems, specific lithography systems, mission aircrafts or other advanced/complex, engineer-to-order capital goods are examples of such specialized systems. Due to the diversity of owners’ requirements, each system develops many unique characteristics, which make it hard, if not impossible, to find a substitute for the system, in the market as a whole. In the second environment, the systems are more generic in terms of their functionality. Trucks, cranes, printers, copy machines, forklifts, computer systems, cooling towers, some common medical devices (i.e. anesthesia, x-ray and ultrasound machines, etc…), power systems are examples of such more commoditized systems. Due to the more generic features of the owners’ requirements, it is easier to find a substitute for a system in the market, with more or less the same functionality, for short-term hiring purposes. Upon a system breakdown, the defective unit (system/subsystem) is sent to the repair shop. MSP is responsible for the repair and also liable for the costs related to the down time. In order to alleviate the down-time costs, there are chiefly two different downtime service strategies that the MSP can follow, depending on the environment the repair shop is operating in. In the specialized system environment, the MSP holds a spare unit inventory for the critical subsystem that causes most of the failures. The downtime service related decision in such a case would be the inventory level of the critical spare subsystems. On the other hand, in the commoditized system environment, rather than keeping a spare unit inventory, the MSP hires a substitute system from an agreed rental store/3rd party supplier. The downtime service related decision in this case is the hiring duration. Next to the above downtime service related decisions, repair shop’s capacity level is the other primary determinant of the systems’ uptime/availability. Since maintenance is a labor-intensive industry, the capacity costs constitute a large portion of the total costs. Increasing pressure on profitability and the growing role of External Labor Supplier Agencies motivate service provider firms to scrutinize the prospects and possibilities of capacity flexibility by using contingent workforce. For various reasons, flexible capacity practices in real life are often periodic, and the period length is both a decision parameter and a metric for flexibility. A shorter period length implies more frequent adapting possibilities and a better tailoring of the capacity. On the other hand, the flexible capacity cost per unit time is higher for shorter period lengths due to the compensating wage differentials, which models the relation between the wage rate and the unpleasantness, risk or other undesirable attributes of the job. Certainly, short period length in this context is an undesirable attribute for the flexible capacity resource, as it mandates the resource to switch tasks and to be ready/available more frequently, without the guarantee that s/he will be actually employed. Therefore, we propose several empirically testable functional forms for the cost rate of a flexible capacity unit, which are decreasing with the period length and, in the limit, approaches to the cost rate of a permanent capacity unit from above. In the light of discussions above, we investigate three different capacity modes in this dissertation: ¿ Fixed Capacity Mode: In this mode, all of the capacity is permanent and ready for use in the repair shop. This mode serves as a reference point in order to assess the benefits of other flexible capacity modes. The relevant capacity decision in this mode is the single capacity level of the repair shop. ¿ Periodic Two-Level Capacity Mode: In this mode, we assume two levels of repair shop capacity: permanent and permanent plus contingent capacity levels. The permanent capacity is always available in the system, whereas the deployment of the contingent capacity is decided at the start of each period based on the number of units waiting to be repaired in the shop. The relevant capacity decisions in this mode are the permanent and contingent capacity levels, the period length and the states (in terms of number of defective units waiting) where the contingent capacity is deployed. ¿ Periodic Capacity Sell-Back Mode: In this mode, the failed units are sent to the repair shop at regular intervals in time. Due to this admission structure, when the repair of all the defective units in the repair shop are completed in a period, it is known that no new defective parts will arrive to the shop at least until the start of the next period. This certainty in idle times allows for a contract, where the repair shop capacity is sold at a reduced price to the capacity agency where it is assigned to other tasks until the start of the next period. The original cost of the multi-skilled repair shop capacity per time unit is higher than the permanent capacity cost that is mentioned in previous modes due to the compensation factors such as additional skills, frequent task switching and transportation/transaction costs. Similar to the previous capacity mode, the compensation decreases with the length of the period length. The relevant capacity decisions in this mode are the capacity level and the period length. The primary goal of this thesis is to develop quantitative models and methods for taking optimal capacity decisions for the repair shop in the presence of the capacity modes described above and to integrate these decisions with the other downtime service decisions of the MSP for two different types of system environments (specialized vs. commoditized). After the introduction of the problem, concepts and literature review are given in Chapters 1. In Chapter 2, we focus on the use of capacity flexibility in the repair operations of the MSP in specialized system environment. The capacity related decisions are integrated with the decision on the stock level of the spare unit inventory for all three capacity modes. In Chapter 3 we investigate the same three capacity modes in a (partially) commoditized system environment, where hiring a substitute system for a pre-determined, uniform duration becomes the conventional method upon a failure. In this chapter the decision on the hiring duration is integrated with the other capacity related decisions. Then we provide some preliminary analysis and give the early results on the hybrid strategy where both "keeping stock" and "hire substitute" strategies are followed. Finally in Chapter 4, we summarize our results, give the conclusion and discuss the topics covered in this thesis with a brief exploration on the future research. The numerical results reveal that, in both specialized and commoditized system environments, substantial cost savings (up to 70%) can be achieved under periodic two-level capacity and periodic capacity sell-back modes compared to the fixed capacity mode. However, both period length and the compensation scheme of the capacity resources greatly influence the savings, even in some cost instances, flexible modes (periodic two-level and capacity sell-back) become less economical compared to the fixed capacity mode. Cost parameter instances in which each of the 3 capacity modes becomes cost-optimal, the characteristics of the cost savings and the sensitivity analysis of cost/policy parameters are investigated in both of the system environments in Chapter 2 and Chapter 3, respectively. In the commoditized system environment, under the same cost parameter settings, the hiring substitute from an external supplier for a fixed duration causes a better, more refined and certain control compared to keeping an inventory. Hybrid strategy, in which a substitute is hired after a stock-out instance, is applicable in commoditized as well as commoditizing (previously specialized systems that are in the ongoing commoditization process) system environments. Hybrid strategy outperforms both "only keeping stock" and "only hiring substitute" alternatives; however, in the commoditized system environment, a MSP may still have a proclivity to employ the "hiring substitute" strategy only, because it does not require any initial investment, which is convenient for SMEs. These issues will be explicated further in Chapter 5. We believe that the framework, the design and analysis of the problems addressed as well as the results and the insights obtained in this dissertation can help and motivate other researchers/practitioners to further investigate the cost saving prospects from capacity flexibility in maintenance service operations. We also anticipate that the commoditization framework described in this thesis will be increasingly useful in the future, since the commoditization of the parts/machines will be much more widespread, pushing all the after-sales service providers to compete on the efficiency of their operatio

Synchronizing the Retail Supply Chain

Dit proefschrift ontwerpt een retail supply chain, die beter en goedkoper is dan de gangbare. Dit wordt bereikt door de distributie te synchroniseren op de productie¬momenten. Goederen zouden direct uit productie al stroomafwaarts moeten bewegen, van fabrikant naar retailer, tegen lage kosten, in volle pallets en in volle auto’s en in hoeveel¬heden die groot genoeg zijn om de vraag tot het volgende productiemoment te dekken. Door de formules van de "Krantenverkoper" en die van de economische ordergrootte (EOQ) aan te passen aan een multi-echelon divergerend distributienetwerk, kan ook theoretisch worden bewezen dat het stroomafwaarts positioneren van voorraden inderdaad optimaal is en dat de voorraden daardoor zullen dalen. De huidige magazijnen van de leveranciers kunnen worden gereduceerd tot overslagpunten, waar goederen van de verschillende fabrieken van een leverancier worden samengebracht om rijden met vollere vrachtwagens mogelijk maken. Kleinere hoeveelheden kunnen leveranciers beter afleveren bij het dichtstbijzijnde distributiecentrum van een retailer, waarna de retailer zelf het deel met bestemming elders verder vervoert. Tenslotte kan de winkelbevoorrading worden aangepast aan de schapruimte, waardoor de werkwijze in de distributiecentra kan worden gerationaliseerd.Piet van der Vlist (1947) was born in Ouderkerk aan den IJssel. He received his high-school diploma from the Marnix Gymnasium in Rotterdam. Also in Rotterdam he graduated as Electronics Engineer at the University of Applied Sciences. He obtained a Master of Science in Electronics at the Delft University of Technology and one in Management Sciences at the University of Twente. He worked 15 years with the Dutch Ministry of Defense on the design and realization of the first generation digital communications systems. Then he joined Bakkenist Management Consultants and later Deloitte Consultancy, together for over 20 years. As consultant he was involved in numerous projects on Data exchange and Supply Chain redesign. Besides that, he was for 11 years (part-time) professor in ICT and Logistics at the Eindhoven University of Technology. Piet wrote and edited several books on data exchange and published numerous articles in business and scientific journals. A fairly good overview of his scientific career can be found in the "Liber Amicorum" that his friends wrote when he left Eindhoven University1. His current research interests lie in the design and management of retail supply chains, all the way from production down to the shelves. He found that the supply chain with the overall lowest costs requires synchronization of distribution to production and not the other way around as current practice seems to dictate. When he had to quit his jobs for health reasons, he finally found the opportunity to devote his time to research and extend the theory that supports Supply Chain Synchronization. He programmed built to purpose simulation models to get a better insight in the dynamics of synchronized supply chains. He joined both the Rotterdam Erasmus University to work with Professor Jo van Nunen and the Eindhoven University of Technology to work with Professor Ton de Kok. This PhD thesis is the result of that effort.This thesis is a design of a retail supply chain that is better and cheaper than the usual one. This is achieved by synchronizing distribution to production. Right from production goods should move downstream the supply chain at low cost in full pallets and in full truckloads, in quantities large enough to cover the needs till the next production run. By extending both the Newsvendor- and the EOQ-formulae to a multi-echelon divergent network, it can be proved that such forward positioning of inventory indeed is optimal and that overall supply chain inventories will drop. The suppliers’ warehouses become stockless cross docking points, where goods from the supplier’s various sourcing plants are brought together to consolidate them into full truckloads. Whenever suppliers deliver lower volumes, they better bring these goods to the nearest retailer’s facility; thereafter the retailer himself should move these goods onward to the proper destination within the retailer’s network. And finally shop replenishment should be rationalized based on shelf coverage, so as to enhance the retailer’s warehouse operations