Coordination of lead times in supply chains

Any buyer that depends on suppliers for the manufacturing of components or delivery of services must pay close attention to both procurement costs and operating costs, the latter being strongly influenced by the supplier's delivery lead times. A supplier's delivery lead time depends on the supplier's capacity or inventory policy, but capacity and inventory are both costly, so there is a classic incentive conflict within the supply chain: the supplier incurs the direct cost of providing responsive delivery while the buyer enjoys the benefit. This dissertation studies how a buyer can design procurement strategies to achieve fast delivery from suppliers. Three specific settings are considered. In the first setting, the buyer procures an input from multiple suppliers and motivates the suppliers to provide fast delivery by allocating demand accordingly. We find that several intuitive allocation policies do not perform well, whereas some simple allocation policies do perform well. In the second setting, the buyer obtains an input from a single supplier. The supplier is either pre-specified or chosen from a pool of qualified suppliers. The buyer has only an unbiased belief in the supplier's capacity costs. We evaluate the buyer's optimal procurement mechanisms and provide several alternative strategies. It is found that charging a late fee is an attractive strategy since it is near optimal both from the buyer's and the supply chain's perspective. Finally, we consider a buyer who procures complementary inputs from different suppliers in the third setting. The buyer is modeled as an assembler in a two-echelon inventory system under periodic review. Since the inputs must be matched to enter the assembly process, the buyer needs to synchronize the suppliers' deliveries, which in turn depend on the suppliers' inventory policies. We study the decentralized behavior of such an inventory system and propose a demand-independent scheme for the buyer to coordinate the system. The impact of information sharing between the suppliers on the decentralized system is also investigated.