Models for Managing Supply and Demand Uncertainties in Supply Chains

Abstract

We propose a classification framework for the operations management literature that has looked at pricing and ordering in supply chains when supply and/or demand are uncertain. We then focus on developing three new models for managing supply and demand uncertainties in supply chains.

In the first model, we study a two period sourcing problem of a firm under two sets of contracts. The contracts differ in terms of acquisition costs and the level of risk that they impose on the firm. We provide the conditions where the optimum solution is unique and also explore the behaviour of the optimum solution analytically and numerically. One application of our model is in the agribusiness supply chain and we provide numerical examples based on data from the almond industry in California.

In the second model we look at a joint ordering, pricing and capacity planning problem. We characterize the optimum policy both in single and multi-period cases. In addition, we study the impact of fixed production costs on the optimum policy.

The third model is devoted to coordination between a buyer and a supplier where there is a possibility of improving the supplier by both players. We analyze the problem under a Stackelberg game setting where the buyer is the leader. We show that the buyer either tries to amplify the investment of the supplier by order inflation or assumes all the investment costs. We investigate the behaviour of the optimum solution under different strategies.