Procurement Risk Management in Beef Supply Chains

Procurement risk management in beef supply chain

Competition, learning, and investment in new technology

Abstract: Efforts to describe the evolution of production costs must simultaneously includ

Soft Order Commitment in Supply Chains: Role of Penalties and Rationing Rules

ABSTRACT In some industries (e.g., semiconductors, electronics, and agribusiness), buyers place noncommitted orders (called soft orders) to manufacturers in an effort to guide the manufacturer's production decisions. After the buyers know their own demand, they place purchase orders (called firm orders). These orders are often placed very close to the production start time or even after the production start time so that it is not possible for the manufacturer to revise its production schedule. The discrepancies between the soft order and the firm order often result in high excess inventories at the manufacturer. Without any commitment related to the soft orders by the buyers and the production by the manufacturer, the soft orders are often not effective. We hence propose a penalty contract, through which the buyers pay a penalty for canceling some portion of their soft orders. This contract can perfectly coordinate the decentralized supply chain of one manufacturer and multiple buyers and can lead to Pareto improvement in profits relative to the wholesale price contract for all firms in the supply chain. Our results indicate that it is more likely for the contract to achieve coordination and Pareto improvement when the manufacturer allocates the supply in proportion to the firm orders than when it allocates the supply according to the soft orders. We also illustrate the contract by using the data from a leading manufacturer in the industry

Supplier Diversification Strategies in the Presence of Yield Uncertainty and Buyer Competition

The benefits of supplier diversification are well established for price-taking firms. In this paper, we investigate the benefits from supplier diversification for dual-sourcing duopolists. We consider a two-echelon supply chain in which suppliers sell components to buyers who produce and sell substitutable products. The suppliers' output processes are uncertain and modeled as having a proportional random yield. Buyers engage in a quantity-based Cournot competition. We find that an increase in supplier correlation leads to more correlated buyers' outputs and a decrease in their profits. In the presence of end-market competition, dual sourcing still brings value by reducing the inefficiency caused by random yield: Namely, when the suppliers' yield processes are strongly negatively correlated, dual sourcing increases the expected market output and improves the firms' profits over sole sourcing. However, unlike a monopolist firm, a duopolist does not necessarily allocate its supplier orders to minimize output variability. We generalize the main results to a two-stage order-quantity–output-quantity game and to one with asymmetric suppliers. </jats:p

PBM Competition in Pharmaceutical Supply Chain: Formulary Design and Drug Pricing

We model the competition among multiple pharmacy benefit managers (PBMs) for the patronage of a client organization. Each PBM selects a list of prices to be charged to the client organization for each of the branded and generic drugs within a therapeutic class (price decision) and a formulary list that assigns branded drugs to preferred or nonpreferred tiers (formulary decision). Drug manufacturers offer rebates to PBMs for drugs on preferred tier of formularies. The individuals participating in the client’s pharmacy benefit plan are the ones consuming the drugs and making purchasing decisions, whereas the client organization is paying the majority of drug cost. The choices of the individuals and the client organization are governed by different utility measures. For this complex drug distribution setting and for competing PBMs, we show the existence and uniqueness of a pure Nash equilibrium on aggregate formulary and price decisions, which represent the welfare-adjusted cost and welfare-adjusted price of each PBM’s plan, respectively. We characterize each PBM’s optimal formulary and equilibrium price decisions and discuss the impact of various model primitives. We apply our model to gain insights on the impact of mergers in the PBM industry. </jats:p