Flexible Production Network Vs Guaranteed Supply Under Disruption

EasyChair Preprint 10587

Abstract

Sudden risk events like natural disasters, trade conflicts, changes in consumer purchasing sentiments and other factors would cause disruption in the market and supply and impact the supply chain's operation and performance. This study considers production capacity allocation and replenishment decisions in a supply chain network of two competitive manufacturers and two competitive retailers with disturbances. We consider a dynamic multi-period negotiation and capacity allocation model. In the dynamic game process, the retailers order products from the manufacturers based on fluctuations in market demand. Manufacturers receive the request and consider production costs, then configure the optimal capacity needed to meet the predetermined filling rate requirements and maximise the profit. Retailers obtain the upstream proposals and then readjust replenishment decisions (where to order and how much to order) to maximise their profit. The strategy profile is the subgame-perfect Nash equilibrium. Under this strategy, it is assumed that retailers are not able to review their inventory thereafter negotiate purchasing orders with manufacturers frequently, as this process involving multiple players is time-consuming. We also consider another model, where retailers opt to frequent replenishment, but also want certain guarantees to reduce the risk of short-of-supply. In this model, retailers and manufacturers negotiate a strategic contract including a production capacity guaranteed for each retailer. The contract then facilitates retailers in optimising their replenishment decisions. We assume the Order-Up-To (OUT) policy at all players in the network and compare the performance of the two models.

Keyphrases: Disruptions, Order-Up-To policy, Replenishment decisions, Stackelberg game theory, Supply Chain Resilience, capacity allocation, production capacity

@booklet{EasyChair:10587,
  author    = {Yanying Jing and Qinyun Li},
  title     = {Flexible Production Network Vs Guaranteed Supply Under Disruption},
  howpublished = {EasyChair Preprint 10587},
  year      = {EasyChair, 2023}}