Capacity allocation with differentiated product demands under dual sourcing

Chung-Chi Hsieh, Hsing Hua Lai

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

This paper investigates a two-stage decentralized supply chain with one capacity-constrained manufacturer sourcing from two competing suppliers with asymmetric component quality. The manufacturer sells an established product with demand exceeding its capacity, and introduces a new, higher-quality product with small and uncertain demand. As opposed to the process maturity for producing the established product, the higher-quality product process suffers from yield uncertainty and higher production cost. We analyze the manufacturer's capacity allocation for the processes and the suppliers' price decisions through a game-theoretical framework, and explore how model parameters influence the manufacturer's decision and profit. One interesting finding is that the effects of certain model parameters, such as the expected yield rate and yield rate variation of producing a higher-quality product, on the manufacturer's profit are contingent upon the expected demand of the higher-quality product. This outcome could help guide manufacturers' profit planning decisions when the expected demand of higher-quality products is very small.

Original languageEnglish
Pages (from-to)757-769
Number of pages13
JournalInternational Journal of Production Economics
Volume193
DOIs
Publication statusPublished - 2017 Nov 1

Fingerprint

Profitability
Supply chains
Planning
Capacity allocation
Differentiated products
Dual sourcing
Product quality
Costs
Profit
Suppliers
Uncertainty

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

Cite this

@article{1686f23b081e4886b4a3404f67c7585f,
title = "Capacity allocation with differentiated product demands under dual sourcing",
abstract = "This paper investigates a two-stage decentralized supply chain with one capacity-constrained manufacturer sourcing from two competing suppliers with asymmetric component quality. The manufacturer sells an established product with demand exceeding its capacity, and introduces a new, higher-quality product with small and uncertain demand. As opposed to the process maturity for producing the established product, the higher-quality product process suffers from yield uncertainty and higher production cost. We analyze the manufacturer's capacity allocation for the processes and the suppliers' price decisions through a game-theoretical framework, and explore how model parameters influence the manufacturer's decision and profit. One interesting finding is that the effects of certain model parameters, such as the expected yield rate and yield rate variation of producing a higher-quality product, on the manufacturer's profit are contingent upon the expected demand of the higher-quality product. This outcome could help guide manufacturers' profit planning decisions when the expected demand of higher-quality products is very small.",
author = "Chung-Chi Hsieh and Lai, {Hsing Hua}",
year = "2017",
month = "11",
day = "1",
doi = "10.1016/j.ijpe.2017.09.005",
language = "English",
volume = "193",
pages = "757--769",
journal = "International Journal of Production Economics",
issn = "0925-5273",
publisher = "Elsevier",

}

Capacity allocation with differentiated product demands under dual sourcing. / Hsieh, Chung-Chi; Lai, Hsing Hua.

In: International Journal of Production Economics, Vol. 193, 01.11.2017, p. 757-769.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Capacity allocation with differentiated product demands under dual sourcing

AU - Hsieh, Chung-Chi

AU - Lai, Hsing Hua

PY - 2017/11/1

Y1 - 2017/11/1

N2 - This paper investigates a two-stage decentralized supply chain with one capacity-constrained manufacturer sourcing from two competing suppliers with asymmetric component quality. The manufacturer sells an established product with demand exceeding its capacity, and introduces a new, higher-quality product with small and uncertain demand. As opposed to the process maturity for producing the established product, the higher-quality product process suffers from yield uncertainty and higher production cost. We analyze the manufacturer's capacity allocation for the processes and the suppliers' price decisions through a game-theoretical framework, and explore how model parameters influence the manufacturer's decision and profit. One interesting finding is that the effects of certain model parameters, such as the expected yield rate and yield rate variation of producing a higher-quality product, on the manufacturer's profit are contingent upon the expected demand of the higher-quality product. This outcome could help guide manufacturers' profit planning decisions when the expected demand of higher-quality products is very small.

AB - This paper investigates a two-stage decentralized supply chain with one capacity-constrained manufacturer sourcing from two competing suppliers with asymmetric component quality. The manufacturer sells an established product with demand exceeding its capacity, and introduces a new, higher-quality product with small and uncertain demand. As opposed to the process maturity for producing the established product, the higher-quality product process suffers from yield uncertainty and higher production cost. We analyze the manufacturer's capacity allocation for the processes and the suppliers' price decisions through a game-theoretical framework, and explore how model parameters influence the manufacturer's decision and profit. One interesting finding is that the effects of certain model parameters, such as the expected yield rate and yield rate variation of producing a higher-quality product, on the manufacturer's profit are contingent upon the expected demand of the higher-quality product. This outcome could help guide manufacturers' profit planning decisions when the expected demand of higher-quality products is very small.

UR - http://www.scopus.com/inward/record.url?scp=85029471495&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85029471495&partnerID=8YFLogxK

U2 - 10.1016/j.ijpe.2017.09.005

DO - 10.1016/j.ijpe.2017.09.005

M3 - Article

VL - 193

SP - 757

EP - 769

JO - International Journal of Production Economics

JF - International Journal of Production Economics

SN - 0925-5273

ER -