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Procurement Contract Design In The Presence Of Supply Risk

Posted on:2016-03-23Degree:DoctorType:Dissertation
Country:ChinaCandidate:X Y ShenFull Text:PDF
GTID:1109330479983239Subject:Management Science and Engineering
Abstract/Summary:PDF Full Text Request
In globalizing supply chains, managers and researchers in operations management fields are paying more attention on supply risk. Meanwhile, widespread information asymmetry concerning supply risk leads to more uncertainty for procurement decisions-makers. It is of great theoretical and practical significance for us to use operational tools to manage supply risk under asymmetric information. Considering that a manufacturer orders from a supplier with private information about random disruption risk or random capacity risk, this dissertation employs three risk-mitigating tools, process improvement, dual-sourcing option, and capacity investment, to intensively study procurement contract design in the presence of supply risk. The following five parts are investigated.Firstly, when the manufacturer initiates process improvement directly to reduce supply disruption risk, procurement contract is designed to jointly optimize the manufacturer’s order quantity and improvement effort under asymmetric information about supply initial reliability. The impacts of information asymmetry on the manufacturer’s optimal decisions are also analyzed. The results show that, the manufacturer actually is trading off channel profit loss and information rent to optimize the procurement contract. Compared with the optimal decisions under full information, information asymmetry decreases the probability of ordering from the supplier, and the manufacturer may exert upward distorted effort on the supplier. Besides, the probability that the supplier appears with different private information types also affects the manufacturer’s decisions on order quantity and improvement effort.Secondly, when the supplier initiates unobservable process improvement to reduce disruption risk and has private information about supply initial reliability, the author investigates how to regulate the supplier’s effort by designing unit penalty in the procurement contract. The supplier’s effort decision and the value of information asymmetry about supply risk are also analyzed. The results indicate that, compared with the optimal decisions under full information, when the supplier is privately informed on his high or low type of initial reliability, the manufacturer may set a higher unit penalty for the supplier with low initial reliability, which leads to upward effort distortion on the supplier. Meanwhile, the manufacturer may order none from the supplier with low initial reliability due to information asymmetry, which causes zero information rent for the supplier with high initial reliability.Thirdly, when both manufacturer and supplier exert efforts to reduce supply disruption risk, the author studies which party should initiate process improvement, the manufacturer, the supplier, or both. In this chapter, the manufacturer’s optimal procurement contract with process improvement initiated by both manufacturer and supplier is designed, and then is compared with manufacturer-initiated improvement contract and supplier-initiated improvement contract in terms of manufacturer’s profit and channel profit. The results show that, supplier-initiated improvement strategy is equivalent to both manufacturer- and supplier-initiated improvement strategy, and manufacturer’s profits generated by these two strategies are lower than the profit generated by manufacturer-initiated improvement strategy. Whereas, the comparisons of channel profits among these three improvement strategies are not straightforward and influenced by the distribution of supplier’s private information about initial reliability.Fourthly, when the manufacturer utilizes dual-sourcing option and both suppliers exert unobservable improvement efforts to reduce supply disruption risk, the manufacturer’s procurement contract design with dual-sourcing option and supplier’s process improvement is investigated. The value of dual-sourcing option under asymmetric information about suppliers’ private information about initial reliabilities is also analyzed, as well as the impact of suppliers’ process improvement on the manufacturer’s dual-sourcing option. The results show that, the manufacturer diversifies given a high unit product price, and only orders from a single supplier or even orders none as unit price decreases. Information asymmetry decreases the probability of ordering from the suppliers, and supplier’s process improvement with moral hazard may accelerate or retard the manufacturer’s diversification decisions.Fifthly, when the manufacturer utilizes dual-sourcing option and both suppliers initiate unobservable capacity investments to mitigate supply risk due to random capacity, push contract in which the manufacturer orders before uncertain demand is realized and pull contract in which the manufacturer orders after demand realization are designed separately, given that both suppliers have private information about random capacity risk. The results show that asymmetric information in push contract makes the manufacturer order less quantities for both suppliers, causing less capacity investments accordingly. Meanwhile, since asymmetric information in pull contract reduces the possibility that the manufacturer utilizes wholesale price to incentivize suppliers’ capacity investments, the sum of both suppliers’ efforts decreases. By comparing push and pull contracts, one can find that the two contracts generate equal profits for the manufacturer under symmetric information, whereas push contract generates more under asymmetric information.
Keywords/Search Tags:Supply risk, Asymmetric information, Process improvement, Dual-sourcing option, Capacity investment
PDF Full Text Request
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