Integrated optimisation for production capacity, raw material ordering and production planning under time and quantity uncertainties based on two case studies

Abstract This paper develops a supply chain (SC) model by integrating raw material ordering and production planning, and production capacity decisions based upon two case studies in manufacturing firms. Multiple types of uncertainties are considered; including: time-related uncertainty (that exists in lead-time and delay) and quantity-related uncertainty (that exists in information and material flows). The SC model consists of several sub-models, which are first formulated mathematically. Simulation (simulation-based stochastic approximation) and genetic algorithm tools are then developed to evaluate several non-parameterised strategies and optimise two parameterised strategies. Experiments are conducted to contrast these strategies, quantify their relative performance, and illustrate the value of information and the impact of uncertainties. These case studies provide useful insights into understanding to what degree the integrated planning model including production capacity decisions could benefit economically in different scenarios, which types of data should be shared, and how these data could be utilised to achieve a better SC system. This study provides insights for small and middle-sized firm management to make better decisions regarding production capacity issues with respect to external uncertainty and/or disruptions; e.g. trade wars and pandemics.</jats:p

Scarcity and the Theory of Storage in Commodity Markets

For most of the 20th century commodity prices fell in real terms. Prices of metals, energy and food became so low that they were almost irrelevant to developed world consumers. Since 2003 prices have risen sharply, and have become so high they have been blamed for recessions, civil unrest and even revolutions. Although increased speculation in commodity markets has probably played a role, the fundamental factors of supply and demand continue to form the most important determinant of commodity prices. Price rises have been caused by ‘scarcity’ caused by rapid demand growth from newly affluent consumers in the developing world, meeting a supply that has struggled to respond. Understanding current and future scarcity in commodities therefore helps us predict and warn of further price spikes. This thesis studies all three major commodity groups, examining existing ways to measure scarcity and proposing new ones. Firstly we study the base (industrial) metals. We examine the ‘theory of storage’, which explains price and price volatility in terms of the quantity stored in inventory, a key measure of scarcity. Secondly we study energy markets. Electricity cannot be stored, so the ‘theory of storage’ cannot be applied. We note an alternative measure of scarcity which allows us to apply a modified theory of storage to electricity. We also examine its applicability to another key energy commodity, crude oil. Finally we examine scarcity in the agricultural products. Here we have inventory data, providing short-term scarcity information, but unlike for energy and metals, we have no concept of reserves, being that resource known but remaining in the ground, which provides longer-term scarcity information. Instead, we propose and examine several other ways to measure scarcity

Towards an observational economics of business behaviour: the horizontal supply curve, 'fuzzy' demand and other anomalies for conventional theory

This paper proposes the development of an 'observational economics' whose domain would be restricted to what is observable in the real world. Observational economics should be regarded as a separate but complementary undertaking to mainstream economics. Adoption of such an approach would enhance the reestablishment and development of interaction between economists and the business community. Phenomena such as price setting, unpredictable and variable demand, and inventories and order backlogs are argued to be anomalous from the viewpoint of conventional microeconomics, but fundamental to an observational perspective on business behaviour. A basic observational model of price and output determination for the price setting manufacturing firm is outlined.observational economics; business behaviour; horizontal supply curve; fuzzy demand; inventories; order backlogs

Scarcity and the Theory of Storage in Commodity Markets

For most of the 20th century commodity prices fell in real terms. Prices of metals, energy and food became so low that they were almost irrelevant to developed world consumers. Since 2003 prices have risen sharply, and have become so high they have been blamed for recessions, civil unrest and even revolutions. Although increased speculation in commodity markets has probably played a role, the fundamental factors of supply and demand continue to form the most important determinant of commodity prices. Price rises have been caused by ‘scarcity’ caused by rapid demand growth from newly affluent consumers in the developing world, meeting a supply that has struggled to respond. Understanding current and future scarcity in commodities therefore helps us predict and warn of further price spikes. This thesis studies all three major commodity groups, examining existing ways to measure scarcity and proposing new ones. Firstly we study the base (industrial) metals. We examine the ‘theory of storage’, which explains price and price volatility in terms of the quantity stored in inventory, a key measure of scarcity. Secondly we study energy markets. Electricity cannot be stored, so the ‘theory of storage’ cannot be applied. We note an alternative measure of scarcity which allows us to apply a modified theory of storage to electricity. We also examine its applicability to another key energy commodity, crude oil. Finally we examine scarcity in the agricultural products. Here we have inventory data, providing short-term scarcity information, but unlike for energy and metals, we have no concept of reserves, being that resource known but remaining in the ground, which provides longer-term scarcity information. Instead, we propose and examine several other ways to measure scarcity

Business Cycles in a Small Open Economy: Stylized Facts from Singapore

This paper is an empirical exercise that seeks to reveal the nature of economic fluctuations in the archetypal small open economy of Singapore. We assess the extent to which local business cycles are influenced by their foreign counterparts with regards to cyclicality, co-movement and volatility characteristics and then document how shock waves from abroad are spread to the broader macroeconomy once they reach Singapore’s shores. To do this, we make use of linear filters and stochastic trend models to extract the cyclical component of economic activity. The results indicate that, while idiosyncrasies are present in Singapore’s macroeconomic fluctuations, there are also stylized facts to be distilled for small open economies.Business cycles, stylized facts, Singapore, band-pass filter, small open economies

Testing futures market efficiency: an empirical study

Some researchers have found that futures prices were biased predictors of future cash prices due to the risk averse behavior of market participants. This paper tested efficiency of corn and wheat futures market using the theoretical model developed by Turnovsky (1983).[superscript]1 The risk premium under the assumption of constant absolute risk aversion of producers and inventory holders was estimated using a nonlinear estimation technique and was used to specify another model of equilibrium expected prices to test if corn and wheat futures markets were efficient. The expectations in this study were formed rationally, which is a necessary condition of an efficient market;The empirical results showed that the risk premiums did exist in corn and wheat futures market and they were different for different group of traders. All of the estimated risk premiums were small, however, they were statistically significant different from zero. The estimated risk aversion coefficient of hedgers was higher than the estimated risk aversion coefficient of speculators for corn futures market. However, for wheat futures market the estimation showed that speculators had higher risk aversion coefficient than hedgers;It was found out that futures prices were biased predictors of future cash prices but the biases were very small. However, not only futures price was important in predicting future cash price, production cost, carrying cost and cost of using futures market were also important. The influence of futures price on future cash price would be diluted by the magnitude of these variables;The efficiency test based on the proposed equilibrium expected model in this paper found the corn futures market to be efficient, while the result was ambiguous for wheat futures market. This study showed that the existence of risk premiums and the biased predictor of futures price had nothing to do with the efficiency of futures market. The empirical test on corn futures market based on the proposed equilibrium expected price model in this study confirmed the efficiency of corn futures market despite the presence of the bias. ftn[superscript]1Turnovsky, Stephen J. The Determination of Spot and Futures Prices with Storable Commodities. Econometrica, 51(5) (September, 1983): 1363-87

Virtual transshipments and revenue-sharing contracts in supply chain management

This dissertation presents the use of virtual transshipments and revenue-sharing contracts for inventory control in a small scale supply chain. The main objective is to maximize the total profit in a centralized supply chain or maximize the supply chain\u27s profit while keeping the individual components\u27 incentives in a decentralized supply chain. First, a centralized supply chain with two capacitated manufacturing plants situated in two distinct geographical regions is considered. Normally, demand in each region is mostly satisfied by the local plant. However, if the local plant is understocked while the remote one is overstocked, some of the newly generated demand can be assigned to be served by the more remote plant. The sources of the above virtual lateral transshipments, unlike the ones involved in real lateral transshipments, do not need to have nonnegative inventory levels throughout the transshipment process. Besides the theoretical analysis for this centralized supply chain, a computational study is conducted in detail to illustrate the ability of virtual lateral transshipments to reduce the total cost. The impacts of the parameters (unit holding cost, production cost, goodwill cost, etc.) on the cost savings that can be achieved by using the transshipment option are also assessed. Then, a supply chain with one supplier and one retailer is considered where a revenue-sharing contract is adopted. In this revenue-sharing contract, the retailer may obtain the product from the supplier at a less-than-production-cost price, but in exchange, the retailer must share the revenue with the supplier at a pre-set revenuesharing rate. The objective is to maximize the overall supply chain\u27s total profit while upholding the individual components\u27 incentives. A two-stage Stackelberg game is used for the analysis. In this game, one player is the leader and the other one is the follower. The analysis reveals that the party who keeps more than half of the revenue should also be the leader of the Stackelberg game. Furthermore, the adoption of a revenue-sharing contract in a supply chain with two suppliers and one retailer under a limited amount of available funds is analyzed. Using the revenue-sharing contract, the retailer pays a transfer cost rate of the production cost per unit when he obtains the items from the suppliers, and shares the revenue with the suppliers at a pre-set revenue-sharing rate. The two suppliers have different transfer cost rates and revenue-sharing rates. The retailer will earn more profit per unit with a higher transfer cost rate. How the retailer orders items from the two suppliers to maximize his expected profit under limited available funds is analyzed next. Conditions are shown under which the optimal way the retailer orders items from the two suppliers exists

Agricultural and Food Systems Sustainability

This book focused on researching food loss and waste in various agricultural supply chains, searching for reduction strategies and possible technological solutions without neglecting the relevance of the socioeconomic factors that influence the functioning of food value chains. The adoption of the 2030 Agenda for Sustainable Development (Goal 12—“Ensure sustainable consumption and production patterns”) calls for renewed efforts to reduce food losses along production and supply chains. Achieving this goal will require greater efforts globally to implement food loss reduction policies and interventions. In addition, the sustainable management and use of byproducts from agriculture, including agricultural residues, has been analyzed. Special attention is given to pre- and post-harvesting losses of agricultural products, including the assessment of their environmental and economic sustainability