Capacity allocation, ordering, and pricing decisions in a supply chain with demand and supply uncertainties

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47 Citations (Scopus)

Abstract

This paper studies coordinated decisions in a decentralized supply chain that consists of one Original Equipment Manufacturer (OEM), one manufacturer, and one distributor, and possesses uncertainties at both demand and supply sides. These uncertainties emerge, respectively, from random demand the distributor faces and randomness of capacity with which the OEM processes the manufacturer's outsourced quantity. Sharing supply and demand uncertainty information along the supply chain enables us to develop three models with different coordination efforts-the OEM and manufacturer coordination, the manufacturer and distributor coordination, and the OEM, manufacturer, and distributor coordination-and quantify the coordinated decisions in these three models. Our analysis of these coordination models suggests that coordinating with the OEM improves the manufacturer's probability of meeting downstream demand and his expected profit, yet coordinating with the manufacturer is not necessarily beneficial to the OEM when downstream coordination is lacking.

Original languageEnglish
Pages (from-to)667-684
Number of pages18
JournalEuropean Journal of Operational Research
Volume184
Issue number2
DOIs
Publication statusPublished - 2008 Jan 16

All Science Journal Classification (ASJC) codes

  • Computer Science(all)
  • Modelling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

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