Abstract
We consider a manufacturer sourcing from two suppliers of asymmetric component quality and producing a quality-differentiated product, namely a low- and high-quality version, with each having deterministic demand. The manufacturer adopts the existing process to produce low-quality products with components from the supplier with low component quality, and develops a new process to produce high-quality products with components from the supplier with high component quality. The new process has imperfect yield, and products that do not meet the specifications for high-quality products can substitute for low-quality products produced with the existing process. We investigate the suppliers’ price decisions and the manufacturer's ordering and production decisions in a game-theoretical model under dual sourcing. Our analyses reveal that increasing product differentiation or higher yield of high-quality products do not necessarily translate to a higher profit for the manufacturer. In light of the manufacturer's sourcing strategies, we show that sourcing from a single supplier with high- and low-quality components yields a lower profit than sourcing from one supplier with high component quality and the other with low component quality. Finally, we investigate the manufacturer's decision-making with endogenous yield rate of high-quality products. Our analyses demonstrate that the manufacturer benefits from setting the yield rate of high-quality products ahead of the suppliers’ price decisions.
| Original language | English |
|---|---|
| Journal | Omega (United Kingdom) |
| DOIs | |
| Publication status | Published - 2019 Jan 1 |
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All Science Journal Classification (ASJC) codes
- Strategy and Management
- Management Science and Operations Research
- Information Systems and Management
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Pricing and ordering decisions in a supply chain with downward substitution and imperfect process yield. / Hsieh, Chung-Chi; Lai, Hsing Hua.
In: Omega (United Kingdom), 01.01.2019.Research output: Contribution to journal › Article
TY - JOUR
T1 - Pricing and ordering decisions in a supply chain with downward substitution and imperfect process yield
AU - Hsieh, Chung-Chi
AU - Lai, Hsing Hua
PY - 2019/1/1
Y1 - 2019/1/1
N2 - We consider a manufacturer sourcing from two suppliers of asymmetric component quality and producing a quality-differentiated product, namely a low- and high-quality version, with each having deterministic demand. The manufacturer adopts the existing process to produce low-quality products with components from the supplier with low component quality, and develops a new process to produce high-quality products with components from the supplier with high component quality. The new process has imperfect yield, and products that do not meet the specifications for high-quality products can substitute for low-quality products produced with the existing process. We investigate the suppliers’ price decisions and the manufacturer's ordering and production decisions in a game-theoretical model under dual sourcing. Our analyses reveal that increasing product differentiation or higher yield of high-quality products do not necessarily translate to a higher profit for the manufacturer. In light of the manufacturer's sourcing strategies, we show that sourcing from a single supplier with high- and low-quality components yields a lower profit than sourcing from one supplier with high component quality and the other with low component quality. Finally, we investigate the manufacturer's decision-making with endogenous yield rate of high-quality products. Our analyses demonstrate that the manufacturer benefits from setting the yield rate of high-quality products ahead of the suppliers’ price decisions.
AB - We consider a manufacturer sourcing from two suppliers of asymmetric component quality and producing a quality-differentiated product, namely a low- and high-quality version, with each having deterministic demand. The manufacturer adopts the existing process to produce low-quality products with components from the supplier with low component quality, and develops a new process to produce high-quality products with components from the supplier with high component quality. The new process has imperfect yield, and products that do not meet the specifications for high-quality products can substitute for low-quality products produced with the existing process. We investigate the suppliers’ price decisions and the manufacturer's ordering and production decisions in a game-theoretical model under dual sourcing. Our analyses reveal that increasing product differentiation or higher yield of high-quality products do not necessarily translate to a higher profit for the manufacturer. In light of the manufacturer's sourcing strategies, we show that sourcing from a single supplier with high- and low-quality components yields a lower profit than sourcing from one supplier with high component quality and the other with low component quality. Finally, we investigate the manufacturer's decision-making with endogenous yield rate of high-quality products. Our analyses demonstrate that the manufacturer benefits from setting the yield rate of high-quality products ahead of the suppliers’ price decisions.
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U2 - 10.1016/j.omega.2019.04.007
DO - 10.1016/j.omega.2019.04.007
M3 - Article
JO - Omega
JF - Omega
SN - 0305-0483
ER -