Flexibility and revenue management in supply chains

A supply chain consists of all parties involved in fulfilling a customer request. In this dissertation, we study two critical drivers of successful Supply Chain Management (SCM): flexibility and revenue management. Flexibility is built into supply chains to hedge against the demand uncertainty. On the other hand, revenue management is concerned with demand management to increase revenue or to reduce the costs by adjusting demand to the existing capacity. The related problems we addressed span various supply chains in production, transportation, and retailing. Next, we provide a brief description of the problems and results presented in the dissertation.; In the first part of the dissertation, we study lead time flexibility in a continuous review supply chain where the retailer uses an (R, Q) inventory policy; when his inventory reaches reorder point R, the retailer places orders of size Q to the manufacturer, who uses a transportation provider to deliver items a lead time later. The manufacturer is able to expedite or postpone the delivery by a certain amount if the retailer makes such a request. Hence, the retailer has an option to modify the lead time by using the most up-to-date demand information. The optimal lead time is found via a threshold policy. We also note that R is much more sensitive to lead times than Q; we thus primarily focus on finding an optimal R. A cost approximation which yields unimodular total costs in R is provided. Finally, the effect of lead time options on the total cost is illustrated with an extensive numerical study.; The second part of the dissertation is composed of chapters three and four, which investigate revenue management in a transportation and a retail supply chain. Specifically, chapter three introduces two dimensional (weight and volume) overbooking problems arising mainly in cargo revenue management, and compares them with one dimensional problems. It considers capacity spoilage and cargo offloading costs, and minimizes their sum. For one dimensional problems, we show that the optimal overbooking limit does not change with the magnitude of the booking requests. In two dimensional problems, the overbooking limit is replaced by a curve. The curve, along with the volume and weight axes, encircles the acceptance region. The booking requests are accepted if they fall within this region. We present Curve (Cab) and Rectangle (Rab) models. The boundary of the acceptance region in the Cab (Rab) model is a curve (rectangle). The optimal curve for the Cab model is shown to be unique and continuous. Moreover, it can be obtained by solving a series of simple equations. Finding the optimal rectangle for the Rab model is more challenging, so we propose an approximate solution. The approximate solution is a limiting solution in the sense that it converges to the optimal rectangle as the booking requests increase. The approximate rectangle is numerically shown to yield costs that are very close to the optimal costs. In chapter four, we study pricing and production games in Vendor Managed Inventory (VMI) systems which is widely used in retail industry. In VMI, the supplier determines the quantity and the retailer determines the price, this causes double marginalization. We illustrate the role of revenue sharing in mitigating the double marginalization in a VMI. We also investigate the positive effect of information updates on the performance of VMI. At the same time, we discuss the existence and uniqueness of a Nash equilibrium in several settings. The numerical studies demonstrate the substantial economic value of revenue sharing and information updates.; In summary, this dissertation explores the significant impact of lead time flexibility and revenue management on supply chain performance. The lead time flexibility increases supply chain responsiveness. Hence, it reduces operational risks and costs. On the other hand, overbooking and revenue sharing can increase supply chain profitability by bet...