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Contracting in manufacturing networks with inventories
Arda, Yasemin; Hennet, Jean-Claude
2006CIMODE 06 - International Conference on Mathematics of Optimization and Decision Making
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Abstract :
[en] An important issue in the management of supply chains and manufacturing systems is to achieve the desired customer service level while respecting the individual economic objectives of the partners. These objectives are generally antagonistic and can lead to contradictory choices in the context of a network with a high degree of local decisional autonomy. The challenge involved is to determine a coordination mechanism that avoids global loss of economic efficiency and to solve nonlinear optimization problems that capture the key dynamics of a complex production/inventory system. This study investigates a two-stage serial supply chain with one manufacturer and one supplier. The manufacturer, producing goods to serve a Poisson demand process, procures a key component from his supplier. At each production facility, the successive processing times of the units are independent exponential random variables. In the decentralized setting considered, each firm manages the local production/inventory control system while attempting to maximize his own steady state expected profit. The main operational decision at each stage is the level of the inventory control parameter. In the game theory framework, the partners play a two-stage game of the Stackelberg type. The manufacturer leads the game by setting the component purchasing price as a function of the observed lateness of delivery. In the considered make-to-stock queuing system, the production facility of the supplier behaves as an M/M/1 queue. However, the departure of units from the finished-goods inventory of the supplier is not a Poisson process. In order to derive closed form results, the method of Lee and Zipkin (1992) is used to approximate the limiting probabilities of the second stage production process. The supplier’s profit function is concave and the optimal action of the supplier can be correctly anticipated by the manufacturer. The manufacturer’s constrained optimization problem consists of determining the optimal values of the contract parameters and the second stage base-stock level. It is shown that using the defined contracting scheme, the system optimal solution is obtained as the Stackelberg equilibrium.
Disciplines :
Production, distribution & supply chain management
Author, co-author :
Arda, Yasemin  ;  Université de Liège - ULiège > HEC-Ecole de gestion : UER > UER Opérations : Supply Chain Management
Hennet, Jean-Claude;  Laboratoire des Sciences de l'Information et des Systèmes (LSIS) de Marseille
Language :
English
Title :
Contracting in manufacturing networks with inventories
Publication date :
18 April 2006
Event name :
CIMODE 06 - International Conference on Mathematics of Optimization and Decision Making
Event organizer :
University Antilles-Guyane
Event place :
Guadeloupe, France
Event date :
18-21 April 2006
Audience :
International
Peer reviewed :
Editorial reviewed
Available on ORBi :
since 11 May 2012

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