Capacity coordination under uncertain yield for supply chains with a single supplier and two competing retailers

Abstract

The product’s yield rates of somewhat unpredictable due to their innovative and sophisticated manufacturing processes, and as a result, the demand for downstream supplier chain members may not always be satisfied. Therefore, contractual agreements are often established to facilitate order fulfilment between suppliers and retailers and thus sustain their cooperative partnerships. This study considers a supply chain, in which a single supplier cooperates with long-term and newly cooperating retailers and develops a game-theoretic model to investigate the optimal capacity allocation strategy for the supply chain. In considering the supplier’s uncertain capacity and competition from the other rival retailer, both retailers will tend to order more than they actually need to avoid possible shortage loss. However, this may strengthen the bullwhip effect and damage the effectiveness of the supply chain. A strategic capacity allocation mechanism with contractual agreements is adopted to prevent distortion of order quantities and also to ensure that the retailers can receive their minimal acceptable quantities. In addition, it is determined that revenue-sharing coordination will mitigate the bullwhip effect and enhance profits for the entire supply chain. The results indicate that the proposed approach will make it possible for the long-term cooperating retailer to honestly place orders.

KEYWORDS:

• Supply chain coordination
• capacity allocation
• game
• revenue sharing

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

Data sharing is not applicable to this article as no new data were created or analyzed in this study.

Additional information

Notes on contributors

Yeu-Shiang Huang

Yeu-Shiang Huang is currently a professor in the Department of Industrial and Information Management at National Cheng Kung University, Taiwan. He earned both his M.S. and Ph.D. degrees in Industrial Engineering from the University of Wisconsin-Madison, U.S.A. His research interests include operations management, supply chain management, reliability engineering, and decision analysis. Related papers have appeared in such professional journals as IIE Transactions, Naval Research Logistics, IEEE Transactions on Engineering Management, European Journal of Operational Research, Reliability Engineering and System Safety, Software Testing, Verification and Reliability, IEEE Transactions on Reliability, International Journal of Production Research, Computers and Operations Research, Computers and Industrial Engineering, Communications in Statistics, and others.

Chih-Chiang Fang

Chih-Chiang Fang is currently an associate professor in the School of Computer Science and Software at Zhaoqing University, Guangdong, China. He received his Ph.D. degree in the Department of Industrial and Information Management at National Cheng Kung University, Taiwan. His research interests include decision analysis, Bayesian statistical methods, and reliability engineering. Related papers have appeared in such professional journals as Naval Research Logistics, Decision Support Systems, IEEE Transactions on Reliability, IEEE Transactions on Engineering Management, Computers and Industrial Engineering, International Journal of Production Economics, and others.

Wan-Ju Sun

Wan-Ju Sun is a graduate student in the Department of Industrial and Information Management at National Cheng Kung University, Taiwan.