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Decentralized Supply Chains Subject to Information Delays

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  • Fangruo Chen

    (Graduate School of Business, Columbia University, New York, New York 10027)

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    Abstract

    We consider a supply chain whose members are divisions of the same firm. The divisions are managed by different individuals with only local inventory information. Both the material and information flows in the supply chain are subject to delays. Under the assumption that the division managers share a common goal to optimize the overall performance of the supply chain (i.e., they act as a team), we characterize the optimal decision rules for the divisions. The team solution reveals the role of information leadtimes in determining the optimal replenishment strategies. We then show that the owner of the firm can manage the divisions as cost centers without compromising the systemwide performance. This is achieved by using an incentive-compatible measurement scheme based on accounting inventory levels. Finally, we investigate the impact of irrational behavior on supply chain performance and demonstrate that it is important for the upstream members of the supply chain to have access to accurate customer demand information.

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    File URL: http://dx.doi.org/10.1287/mnsc.45.8.1076
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 45 (1999)
    Issue (Month): 8 (August)
    Pages: 1076-1090

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    Handle: RePEc:inm:ormnsc:v:45:y:1999:i:8:p:1076-1090

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    Related research

    Keywords: supply chain management; information delays; teams; cost centers; incentive compatibility; irrational behavior; the beer game;

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    Cited by:
    1. Toktas-Palut, Peral & Ülengin, Füsun, 2011. "Coordination in a two-stage capacitated supply chain with multiple suppliers," European Journal of Operational Research, Elsevier, vol. 212(1), pages 43-53, July.
    2. Li, Xiuhui & Wang, Qinan, 2007. "Coordination mechanisms of supply chain systems," European Journal of Operational Research, Elsevier, vol. 179(1), pages 1-16, May.
    3. Wang, Hongwei & Guo, Min & Efstathiou, Janet, 2004. "A game-theoretical cooperative mechanism design for a two-echelon decentralized supply chain," European Journal of Operational Research, Elsevier, vol. 157(2), pages 372-388, September.
    4. Lang, N.A. & Moonen, J.M. & Srour, F.J. & Zuidwijk, R.A., 2008. "Multi Agent Systems in Logistics: A Literature and State-of-the-art Review," ERIM Report Series Research in Management ERS-2008-043-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
    5. Dobhan, Alexander & Oberlaender, Michael, 2013. "Hybrid contracting within multi-location networks," International Journal of Production Economics, Elsevier, vol. 143(2), pages 612-619.
    6. Ryu, Seung-Jin & Tsukishima, Takahiro & Onari, Hisashi, 2009. "A study on evaluation of demand information-sharing methods in supply chain," International Journal of Production Economics, Elsevier, vol. 120(1), pages 162-175, July.
    7. Ancarani, A. & Di Mauro, C. & D'Urso, D., 2013. "A human experiment on inventory decisions under supply uncertainty," International Journal of Production Economics, Elsevier, vol. 142(1), pages 61-73.
    8. Schneeweiss, Christoph & Zimmer, Kirstin, 2004. "Hierarchical coordination mechanisms within the supply chain," European Journal of Operational Research, Elsevier, vol. 153(3), pages 687-703, March.
    9. Canan Savaskan & Charles J. Corbett, 2001. "Contracting and Coordination in Closed-Loop Supply Chains," Discussion Papers 1327, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    10. Crespo Marquez, Adolfo & Bianchi, Carmine & Gupta, Jatinder N. D., 2004. "Operational and financial effectiveness of e-collaboration tools in supply chain integration," European Journal of Operational Research, Elsevier, vol. 159(2), pages 348-363, December.
    11. Akkermans, Henk & Bogerd, Paul & van Doremalen, Jan, 2004. "Travail, transparency and trust: A case study of computer-supported collaborative supply chain planning in high-tech electronics," European Journal of Operational Research, Elsevier, vol. 153(2), pages 445-456, March.
    12. Son, Joong Y. & Sheu, Chwen, 2008. "The impact of replenishment policy deviations in a decentralized supply chain," International Journal of Production Economics, Elsevier, vol. 113(2), pages 785-804, June.
    13. Hosoda, Takamichi & Disney, Stephen M., 2009. "Impact of market demand mis-specification on a two-level supply chain," International Journal of Production Economics, Elsevier, vol. 121(2), pages 739-751, October.
    14. Corbett, Charles J. & DeCroix, Gregory A. & Ha, Albert Y., 2005. "Optimal shared-savings contracts in supply chains: Linear contracts and double moral hazard," European Journal of Operational Research, Elsevier, vol. 163(3), pages 653-667, June.
    15. Caldentey, René. & Wein, Lawrence M., 1999. "Analysis of decentralized production-inventory system," Working papers WP 4099-99., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    16. Chu, Hongsheng & Wang, Jingchun & Jin, Yihui & Suo, Hansheng, 2006. "Decentralized inventory control in a two-component assembly system," International Journal of Production Economics, Elsevier, vol. 102(2), pages 255-264, August.
    17. Xiao, Tiaojun & Qi, Xiangtong & Yu, Gang, 2007. "Coordination of supply chain after demand disruptions when retailers compete," International Journal of Production Economics, Elsevier, vol. 109(1-2), pages 162-179, September.
    18. Chatfield, Dean C. & Pritchard, Alan M., 2013. "Returns and the bullwhip effect," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 49(1), pages 159-175.
    19. Uskonen, Jukka & Tenhiälä, Antti, 2012. "The price of responsiveness: Cost analysis of change orders in make-to-order manufacturing," International Journal of Production Economics, Elsevier, vol. 135(1), pages 420-429.
    20. Moonen, J.M. & van de Rakt, B. & Miller, I. & van Nunen, J.A.E.E. & van Hillegersberg, J., 2005. "Agent Technology supports Inter-Organizational Planning in the Port," ERIM Report Series Research in Management ERS-2005-027-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
    21. Cantor, David E. & Katok, Elena, 2012. "Production smoothing in a serial supply chain: A laboratory investigation," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(4), pages 781-794.

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