A supplier must invest and build specific capacity for its buyer to lower variable production cost long before uncertainties have been resolved. Bearing the upfront capacity and cost-reduction investment costs, the supplier under-builds the specialized capacity and under-invests in cost reduction. To resolve this issue, the supply chain partners often rely on informal agreements plus ex post renegotiation. This paper shows that neither quantity commitment only or price only initial agreement can induce the supplier to invest and build specific capacity at the channelefficient level. The supplier will over-invest but under-build the specific capacity under quantity commitment only contracts, and will under-invest but over-build the specific capacity under priceonly initial contracts. There exists an initial quantity plus price contract or option contract that induces the supplier to build the capacity and invest in cost reduction at the first-best level with or without ex post renegotiation. To improve the channel efficiency, the firms will renegotiate ex post with probability one under the quantity plus contract, but will renegotiate only if realized demand is high so that options are exercised up.
{"title":"Specific Capacity Investment in Supply Chains With Renegotiation","authors":"Qiaohai Hu","doi":"10.1561/0200000087","DOIUrl":"https://doi.org/10.1561/0200000087","url":null,"abstract":"A supplier must invest and build specific capacity for its buyer to lower variable production cost long before uncertainties have been resolved. Bearing the upfront capacity and cost-reduction investment costs, the supplier under-builds the specialized capacity and under-invests in cost reduction. To resolve this issue, the supply chain partners often rely on informal agreements plus ex post renegotiation. This paper shows that neither quantity commitment only or price only initial agreement can induce the supplier to invest and build specific capacity at the channelefficient level. The supplier will over-invest but under-build the specific capacity under quantity commitment only contracts, and will under-invest but over-build the specific capacity under priceonly initial contracts. There exists an initial quantity plus price contract or option contract that induces the supplier to build the capacity and invest in cost reduction at the first-best level with or without ex post renegotiation. To improve the channel efficiency, the firms will renegotiate ex post with probability one under the quantity plus contract, but will renegotiate only if realized demand is high so that options are exercised up.","PeriodicalId":39990,"journal":{"name":"Foundations and Trends in Technology, Information and Operations Management","volume":"19 5 1","pages":"334-348"},"PeriodicalIF":0.0,"publicationDate":"2019-03-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90247353","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Data and Risk Analytics for Production Planning","authors":"Liao Wang, D. Yao","doi":"10.1561/0200000086","DOIUrl":"https://doi.org/10.1561/0200000086","url":null,"abstract":"","PeriodicalId":39990,"journal":{"name":"Foundations and Trends in Technology, Information and Operations Management","volume":"39 1","pages":"201-218"},"PeriodicalIF":0.0,"publicationDate":"2019-03-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91232014","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This chapter develops a theoretical basis for understanding the trade-offs facing a farmer for allocating his farmland among several crops over multiple growing seasons. Specifically, we focus on the farmland allocation among two cash crops (corn and soybeans) and letting the farmland lay fallow to rejuvenate the soil and increase the revenue for the crop grown on this farmland in the subsequent seasons. In each growing period, the farmer chooses the allocation in the presence of revenue uncertainty for each cash crop, and crop rotation benefits across periods, where revenue is stochastically larger and farming cost is lower when a cash crop is grown on a rotated farmland (where the same crop was not grown in the previous period). We solve for the optimal dynamic allocation policy. show that growing corn in the entire farmland provides the best performance.
{"title":"Corn, Soybeans or Fallow: Dynamic Farmland Allocation under Uncertainty","authors":"Onur Boyabatlı, Javad Nasiry, Y. Zhou","doi":"10.1561/0200000083","DOIUrl":"https://doi.org/10.1561/0200000083","url":null,"abstract":"This chapter develops a theoretical basis for understanding the trade-offs facing a farmer for allocating his farmland among several crops over multiple growing seasons. Specifically, we focus on the farmland allocation among two cash crops (corn and soybeans) and letting the farmland lay fallow to rejuvenate the soil and increase the revenue for the crop grown on this farmland in the subsequent seasons. In each growing period, the farmer chooses the allocation in the presence of revenue uncertainty for each cash crop, and crop rotation benefits across periods, where revenue is stochastically larger and farming cost is lower when a cash crop is grown on a rotated farmland (where the same crop was not grown in the previous period). We solve for the optimal dynamic allocation policy. show that growing corn in the entire farmland provides the best performance.","PeriodicalId":39990,"journal":{"name":"Foundations and Trends in Technology, Information and Operations Management","volume":"17 1","pages":"280-297"},"PeriodicalIF":0.0,"publicationDate":"2019-03-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"72881874","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Material and Cash Flow in Two-Tier Supply Chain with Trade Credits and Defaults","authors":"Mabel C. Chou, C. Teo, Yuanguang Zhong","doi":"10.1561/0200000081","DOIUrl":"https://doi.org/10.1561/0200000081","url":null,"abstract":"","PeriodicalId":39990,"journal":{"name":"Foundations and Trends in Technology, Information and Operations Management","volume":"123 1","pages":"119-134"},"PeriodicalIF":0.0,"publicationDate":"2019-03-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76150293","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study cash flow risk hedging in a bilateral supply chain of a supplier and a manufacturer that use internal cash to invest in production efficiency improvements. The associated production efficiency function is convex in capital investment. We offer a conceptual framework for understanding supply chain cash hedging strategies by decomposing the difference of a firm’s expected profit of hedging versus not hedging into a sum of two terms: the cost reduction effect and the flexibility effect of hedging. We find that the correlation of cash flow risks of supply chain partners significantly affects the hedging decisions of firms via impacts on production efficiencies. When the cash flows of firms are independent, the cost reduction effect favors hedging, whereas the flexibility effect favors not hedging. A firm is more likely to hedge when the supply chain is more profitable or its supply chain partner hedges. When the cash flows of firms are correlated, the cost reduction and flexibility effect of hedging may complement each other and support the same hedging choice. The impact of market size on firms’ hedging decisions is contingent on the cash flow correlation.
{"title":"A Framework of Hedging Decisions for Supply Chain Partners","authors":"P. Kouvelis, Xiaole Wu, Yixuan Xiao","doi":"10.1561/0200000082","DOIUrl":"https://doi.org/10.1561/0200000082","url":null,"abstract":"We study cash flow risk hedging in a bilateral supply chain of a supplier and a manufacturer that use internal cash to invest in production efficiency improvements. The associated production efficiency function is convex in capital investment. We offer a conceptual framework for understanding supply chain cash hedging strategies by decomposing the difference of a firm’s expected profit of hedging versus not hedging into a sum of two terms: the cost reduction effect and the flexibility effect of hedging. We find that the correlation of cash flow risks of supply chain partners significantly affects the hedging decisions of firms via impacts on production efficiencies. When the cash flows of firms are independent, the cost reduction effect favors hedging, whereas the flexibility effect favors not hedging. A firm is more likely to hedge when the supply chain is more profitable or its supply chain partner hedges. When the cash flows of firms are correlated, the cost reduction and flexibility effect of hedging may complement each other and support the same hedging choice. The impact of market size on firms’ hedging decisions is contingent on the cash flow correlation.","PeriodicalId":39990,"journal":{"name":"Foundations and Trends in Technology, Information and Operations Management","volume":"390 1","pages":"189-200"},"PeriodicalIF":0.0,"publicationDate":"2019-03-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79288521","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Introduction and Conceptual Overview of Contents","authors":"P. Kouvelis, Lingxiu Dong, Danko Turcic","doi":"10.1561/0200000094","DOIUrl":"https://doi.org/10.1561/0200000094","url":null,"abstract":"","PeriodicalId":39990,"journal":{"name":"Foundations and Trends in Technology, Information and Operations Management","volume":"28 1","pages":"115-118"},"PeriodicalIF":0.0,"publicationDate":"2019-03-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86872447","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Cash Beer Game","authors":"Kevin H. Shang","doi":"10.1561/0200000088","DOIUrl":"https://doi.org/10.1561/0200000088","url":null,"abstract":"","PeriodicalId":39990,"journal":{"name":"Foundations and Trends in Technology, Information and Operations Management","volume":"13 1","pages":"173-188"},"PeriodicalIF":0.0,"publicationDate":"2019-03-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81925782","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Disruption Risk Management in Serial Multi-Echelon Supply Chains","authors":"Florian Lücker, S. Chopra, Ralf W. Seifert","doi":"10.1561/0200000092","DOIUrl":"https://doi.org/10.1561/0200000092","url":null,"abstract":"","PeriodicalId":39990,"journal":{"name":"Foundations and Trends in Technology, Information and Operations Management","volume":"20 1","pages":"298-315"},"PeriodicalIF":0.0,"publicationDate":"2019-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83698817","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
It is our intention to write a different overview of inventory models, from single item single echelon models to multi-item multi-echelon models, then is mostly provided in text books on Operations Management. We hope that this monograph provides complementary knowledge. Instead of starting with inventory models that are tractable from a mathematical point of view, we start from the inventory management problem and the modeling challenges to be faced. We present the economic order quantity problem from the perspective of Return On Investment instead of from a cost perspective. We show that the Newsvendor fractile emerges from virtually any model with linear holding and penalty costs. And we discuss the complexities of multi-item multi-echelon inventory systems by developing necessary and sufficient conditions operational control policies for such systems should satisfy.
{"title":"Inventory Management: Modeling Real-life Supply Chains and Empirical Validity","authors":"T. Kok","doi":"10.1561/0200000057","DOIUrl":"https://doi.org/10.1561/0200000057","url":null,"abstract":"It is our intention to write a different overview of inventory models, from single item single echelon models to multi-item multi-echelon models, then is mostly provided in text books on Operations Management. We hope that this monograph provides complementary knowledge. Instead of starting with inventory models that are tractable from a mathematical point of view, we start from the inventory management problem and the modeling challenges to be faced. We present the economic order quantity problem from the perspective of Return On Investment instead of from a cost perspective. We show that the Newsvendor fractile emerges from virtually any model with linear holding and penalty costs. And we discuss the complexities of multi-item multi-echelon inventory systems by developing necessary and sufficient conditions operational control policies for such systems should satisfy.","PeriodicalId":39990,"journal":{"name":"Foundations and Trends in Technology, Information and Operations Management","volume":"1 1","pages":"343-437"},"PeriodicalIF":0.0,"publicationDate":"2018-04-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74045777","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using a dyadic panel dataset that links U.S. suppliers with their major buyers, we study the impact of trade credit on firm performance. In particular, we make the distinction between an industry-average trade credit and an individual supply chain’s deviation from such an industry average. When suppliers offer trade credit at their industry-average level, this action facilitates trade and, thus, is positively associated with both parties’ performance; conversely, when suppliers are more aggressive in their trade credit strategy than the industry average, then the excess trade credit is negatively associated with buyer performance. One managerial message from our research is that buyers should be cautious about trade credit far exceeding the industry-average level.
{"title":"Impact of Trade Credit Financing on Firm Performance in Supply Chains","authors":"Hsiao-Hui Lee, Jianer Zhou, Jingqi Wang","doi":"10.1561/0200000062","DOIUrl":"https://doi.org/10.1561/0200000062","url":null,"abstract":"Using a dyadic panel dataset that links U.S. suppliers with their major buyers, we study the impact of trade credit on firm performance. In particular, we make the distinction between an industry-average trade credit and an individual supply chain’s deviation from such an industry average. When suppliers offer trade credit at their industry-average level, this action facilitates trade and, thus, is positively associated with both parties’ performance; conversely, when suppliers are more aggressive in their trade credit strategy than the industry average, then the excess trade credit is negatively associated with buyer performance. One managerial message from our research is that buyers should be cautious about trade credit far exceeding the industry-average level.","PeriodicalId":39990,"journal":{"name":"Foundations and Trends in Technology, Information and Operations Management","volume":"25 1","pages":"253-269"},"PeriodicalIF":0.0,"publicationDate":"2017-12-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73469473","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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