Matching Demand and Supply of Short Life-Cycle Products by Trading Capacity Futures

The mismatching risk of the newsvendor due to demand uncertainty is a fundamental issue in inventory research. We argue that the risk can be pooled and shared among different supply chains, and it can also be transferred to the public via financial derivatives, provided that suppliers have short lead-time capacities for retailers to replenish stocks within the season. We treat such reserved capacity (super capacity) as a commodity that can be traded as futures to retailers and speculators.;Consider a sub-industry of short life-cycle products in which a group of suppliers have comparable production capabilities to produce goods for their "newsvendor-type" of retailers, who sell non-identical products in the market. The retailers buy physical goods and super capacity futures as inventory portfolios before season. After demand realization in the season, the retailers make replenishment decisions, which are limited to the capacity futures on hand. However, the retailers can make bidirectional adjustments to their inventory positions by forming coalitions to transfer the residual capacity futures among themselves. This mechanism also helps to improve supply flexibility and increases the utilization of suppliers' reserved capacity.;The dissertation consists of three parts. First, we examine two supply chains that are engaged in a co-opetition game. We prove that Pareto improvement can be obtained if residual capacity is exchanged between the retailers in the season.;Second, we extend the model to a group of n retailers and m suppliers to form a sub-industry. Our findings reveal that the retailers can improve their payoffs by sharing risk among different supply chains.;Third, we allow the game to include speculators from the public. Our results show that the whole sub-industry is better off with super capacity trading even with the presence of outsiders.;In this thesis we also develop a time-based, value-adding capacity measurement model for super capacity trading among supply chains involving various products.;Our study establishes that trading super capacity futures is an efficient mechanism for individual newsvendors to improve their performance in matching demand with supply by combining operational and financial hedging strategies to reduce and share the mismatching risk.