Sourcing For Innovative Items And Trade Credit

How to manage the supply chain effectively has become a significant issue for companies to improve their core competitiveness.By applying stochastic programming,convex programming,and contract theory such as auction,multi-dimensional screening theory,and multi-task theory,this thesis studies the supply base design problem for innovative products and also some problems involved with information and fund flow.The second chapter examines the supply base design problem for innovative products and two commonly used strategies for supply chain management—improving the flexibility of the supply chain and building excess capacity.Sourcing innovative items in advance entails significant risks for the buyer.To reduce the possibility of bringing a mediocre product to the market,buyers can build a large supply base and pick the best available products after uncertainties have materialized.This chapter starts with the case of independent supplier profits: we characterize the optimal supply base size and find that it is optimal to recruit a much larger number of suppliers compared to the number of products needed.Then,this chapter studies the case where different supplier groups are correlated.While the exact solution can be obtained in simple cases,the general stochastic problem can only be solved numerically.Hence we propose three approximations that provide excellent solutions,especially when the number of products to source is large.Our framework thus provides guidelines for buyers that want to diversify their sourcing risks through supply base design.The third chapter discusses another strategy in supply chain management,i.e.,to mitigate the uncertainty of the demand by obtaining more information.Since the retailer is usually closer to the customer and is privately known about its investment in forecasting,the retailer is believed to have better information than the manufacture in terms of both the demand signal and the accuracy of the forecasting.This chapter firstly establishes a multi-dimensional screening model,and then discusses the contracting problem under several simpler but commonly investigated information structures by setting a particular value to some parameters.It demonstrates that for all the cases,the optimal incentive schemes take on a threshold structure: the manufacturer offers a pooling contract when the unit production cost is lower or higher a certain level,but a separating one when it is intermediate.Further,it shows that for the retailer,the private demand signal and forecast accuracy information are complements under certain circumstances,whereas under other circumstances,one dimensional asymmetric information might have no impact on the other and might be even detrimental to the retailer,which is quite interesting.In the meantime,for the manufacturer,given that the demand signal is asymmetric information,obtaining more information regarding the forecast accuracy becomes important;but providing that the forecast accuracy is already asymmetric information,it reveals that retailer possessing more dimensional private information might benefit the manufacturer.Lastly,due to the interaction effect between these two dimensional asymmetric information,the value of one particular information under one and two dimensional asymmetric information are not necessarily the same.The fourth chapter studies a firm’s optimal payment policy choice between credit sale and cash sale.Although cash sale enables the company to quickly collect the payment,demand might lose when the buyer is capital constrained.Credit sale can solve this problem perfectly;nevertheless,slow payment and buyer default resulting from trade credit sale does cause huge economic losses.This chapter assumes that,if the products are sold on a cash basis,then only high quality buyers can afford them.What this chapter has found out is that credit sale strictly dominates cash sale except when the expected profit from selling to low quality buyers is less than the salvage value and the demand coefficient of variation is extremely high.Further,under credit sale,two counterintuitive observations can be obtained when the demand coefficient of variation is small.The first is that the analysis reveals that the firm may not serve the low quality buyers despite that doing so offers profits.The second is that the firm may also serve the low quality buyers despite incurring a loss by doing so.Further,it demonstrates that when the credit sale is employed,the firm’s optimal expected profit does not necessarily increase with the proportion of high quality buyers in the market and the low quality buyers’ payment probability.But it does when the demand coefficient of variation is significantly high,regardless of whether the profit from the low quality buyers is lower or higher than the product’s salvage value.The fifth chapter investigates the salesforce compensation problem under trade credit sale.This chapter establishes a multitask agency problem to incentivize the sales agent to exert a right effort and at the same time to truthfully tell the client’s type.In the meantime,four widely used compensation schemes are studied: compensation based on the sales volume,compensation based on the collected back revenue,compensation based on both the signal reported by the sales agent and the collected back revenue,and compensation based on both the signal reported by the sales agent and the post-sale signal observed by the firm.And the firm can choose a credit sale policy either to sell only to the high,or to sell to both the high and low quality buyers.It shows that when the signal is perfect and the compensation is based on the collected back revenue,the optimal contract when the credit sale policy is selling to both the high and low quality buyers is the same as that in this case;and in the meantime,the compensation contract based on the collected back revenue is also equivalent to that based on both the signal reported by the sales agent and the collected back revenue.However,this result does not hold any more when the signal reported by the sales agent is noisy.Further,it reveals that when the signal about the buyer’s type observed by the sales agent is perfect,selling only to the high quality buyers is always the best credit policy.Whereas when the signal is noisy,the optimal credit sale policy depends critically on both the product’s salvage value and the cost of exerting a higher level effort.In the end,it presents that exerting a higher level effort when the corresponding cost is not too expensive;otherwise enticing the sales agent to exert a lower level effort is the best.