Developing a shared supplier with endogenous spillovers

Firms who buy from suppliers often engage in supplier development to reduce the supplier's production cost. Being aware that their efforts may benefit a rival firm when there is a shared supplier, some buyers only invest in “specific supplier development,” that is, in those processes or technologies where spillover cannot occur. Other buyers willingly accept the spillover that arises from supplier development, and invest in “generic supplier development.” Our game-theoretic model captures a buyer's choice to invest in these distinct supplier development types as a way to endogenize spillovers. In contrast to the literature, this paper considers the benefits of investing in a combination (i.e., portfolio) of cost-reducing generic and specific supplier development. We demonstrate how supplier development affects a shared supplier's wholesale pricing decisions; whereas generic supplier development lowers wholesale prices equally across buyers, specific supplier development only lowers the wholesale price of the investing party. Our model shows that buyers should treat the spillovers from generic supplier development as an investment opportunity rather than a threat. In equilibrium, a buyer will always invest in a portfolio of both supplier development types, and having a better generic than specific investment capability may even make generic supplier development the most prevalent option for him, depending on the level of competition. Moreover, even if the buyers can commit to only investing in specific supplier investment, the resulting equilibrium gives lower buyer profits than a portfolio that includes generic investments. We also find that the presence of specific investments may raise generic supplier development, benefiting all supply chain actors. However, incorporating specific supplier development into a supplier development portfolio or a commitment to investment in only specific supplier development can lead to a prisoner's dilemma in terms of buyer profits. We show how investment capabilities and competitive intensity drive the buyers' investment decisions and supply chain actors' profits. The paper's main results also hold for asymmetric generic investment capabilities, though we highlight that the least capable buyer will free-ride on his rival's investments, consequently making him earn higher profits

When the bullwhip effect is an increasing function of the lead time

This is the final version. Available from the publisher via the DOI in this record.We study the relationship between lead times and the bullwhip effect produced by the order-up-to policy. The usual conclusion in the literature is that longer lead-time increase the bullwhip effect, we show that this is not always the case. Indeed, it seems to be rather rare. We achieve this by first showing that a positive demand impulse response leads to a bullwhip effect that is always increasing in the lead time when the order-up-to policy is used to make supply chain inventory replenishment decisions. By using the zeros and poles of the z-transform of the demand process, we reveal when this demand impulse is positive. To make concrete our approach in a nontrivial example we study the ARMA(2,2) demand process

On the equivalence of the proportional and damped trend order-up-to policies: An eigenvalue analysis

This is the author accepted manuscript.Our contribution is to show the equivalence of the order-up-to replenishment policy with damped trend forecasting (OUT-DT) to the proportional OUT (POUT) policy via an eigenvalue (zero-pole) analysis. We also investigate whether the OUT-DT policy has an always increasing in the lead time Bullwhip effect using the eigenvalues ordering approach of Gaalman, Disney and Wang (2018)

Global dual sourcing: ARMA(1,1) market demand and its decomposition

This is the author accepted manuscript.We consider the case of reshoring, where a global firm takes back a portion of its low-cost offshore supply to be produced in nearshore factory in order to establish a dual sourcing supply chain equipped with both low cost and responsiveness. We first establish the performance benchmark of a single (nearshore or offshore) supplier model. In the dual sourcing setting, a firm decomposes the first order auto-regressive moving average, ARMA(1,1), market demand process into two parts: one for the nearshore source and one for the offshore source. Order-up-to policies determine the order quantities for both sources. We show how to reduce inventory costs in the dual-sourcing case to a level identical to the near-shore single-source case. Furthermore, if certain conditions are met, the nearshore manufacturing cost reduces in the offshore lead-time. This suggests low-cost and low-emission transport modes should be utilized (slow steaming vessels which are both low cost and environmentally friendly, but may endure longer offshore lead-times come to mind), breaking the trade-off between economic and environmental performance

When bullwhip increases in the lead time: An eigenvalue analysis of ARMA demand

This is the final version. Available on open access from Elsevier via the DOI in this recordProblem definition. The impact of lead times on the bullwhip effect produced by the order-up-to (OUT) replenishment policy is studied. Practical relevance. Under general auto-regressive moving average (ARMA) demand, we investigate when the OUT policy possesses an always-increasing-in-the-lead-time bullwhip effect and when it does not. Methodology. A bullwhip measure based on the difference between the demand and order variance is combined with a novel analysis based on the eigenvalues and impulse response of the ARMA demand process. Contribution. We show a positive demand impulse response is a necessary and sufficient condition for an increasing in the lead time bullwhip effect. The ordering of zeros and poles (the eigenvalue ordering) of the z-transform transfer function of the demand process reveals when the demand impulse is positive. To provide further insight, we study ARMA(2,2) demand, which contains six different eigenvalue orderings. Two of these orderings satisfy a sufficient condition (positive demand eigenvalues in a particular order) for a positive impulse response. Two orderings satisfy the inverse of this sufficient condition and do not possess a positive impulse response. The final two orderings do not satisfy the sufficient condition, nor its inverse, but do contain positive impulse responses. Managerial implications. Our findings are important as reducing lead-times is often advocated as an improvement action to reduce the bullwhip effect. By identifying the demand characteristics that lead to a bullwhip effect that increases in the lead time we offer prescriptive advice on when, and when not, to invest in lead time reduction

Dynamic analysis of the damped trend proportional order-up-to policy

This is the author accepted manuscriptUsing the Kalman filter we build a state-space model of the proportional order-up-to (POUT) policy with an autoregressive integrated moving average (ARIMA) demand process. The POUT policy is closely related to the order-to-up (OUT) policy with the addition of a proportional feedback controller in the inventory and work-in-progress feedback loops. Our modelling approach allows us to analyse the behaviour of the damped trend POUT policy when the damped trend forecasting method predicts ARIMA(1,1,2) demand. We derive and analyse the demand and inventory variances. We also find the covariance between the demand forecast and the inventory forecast in an attempt to obtain the order variance. Both the demand and the order variances are infinite under the non-stationary ARIMA(1,1,2) process. Thus, the traditional bullwhip measure (the ratio of the order variance divided by the demand variance) is indeterminate. However, we can study the difference between order and demand variance and the difference between the OUT and POUT policies responses