IDEAS home Printed from https://ideas.repec.org/a/wly/navres/v62y2015i2p107-126.html
   My bibliography  Save this article

Inventory competition with yield reliability improvement

Author

Listed:
  • Chung‐Yee Lee
  • Tao Lu

Abstract

This article studies the inventory competition under yield uncertainty. Two firms with random yield compete for substitutable demand: If one firm suffers a stockout, which can be caused by yield failure, its unsatisfied customers may switch to its competitor. We first study the case in which two competing firms decide order quantities based on the exogenous reliability levels. The results from the traditional inventory competition are generalized to the case with yield uncertainty and we find that quantity and reliability can be complementary instruments in the competition. Furthermore, we allow the firms to endogenously improve their yield reliability before competing in quantity. We show that the reliability game is submodular under some assumptions. The results indicate that the competition in quantity can discourage the reliability improvement. With an extensive numerical study, we also demonstrate the robustness of our analytical results in more general settings. © 2015 Wiley Periodicals, Inc. Naval Research Logistics 62: 107–126, 2015

Suggested Citation

  • Chung‐Yee Lee & Tao Lu, 2015. "Inventory competition with yield reliability improvement," Naval Research Logistics (NRL), John Wiley & Sons, vol. 62(2), pages 107-126, March.
    • Handle: RePEc:wly:navres:v:62:y:2015:i:2:p:107-126
    DOI: 10.1002/nav.21616
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/nav.21616
    Download Restriction: no
    File URL: https://libkey.io/10.1002/nav.21616?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Awi Federgruen & Nan Yang, 2009. "Optimal Supply Diversification Under General Supply Risks," Operations Research, INFORMS, vol. 57(6), pages 1451-1468, December.
    2. Shaoxuan Liu & Kut C. So & Fuqiang Zhang, 2010. "Effect of Supply Reliability in a Retail Setting with Joint Marketing and Inventory Decisions," Manufacturing & Service Operations Management, INFORMS, vol. 12(1), pages 19-32, March.
    3. Wang, Qinan & Parlar, Mahmut, 1994. "A three-person game theory model arising in stochastic inventory control theory," European Journal of Operational Research, Elsevier, vol. 76(1), pages 83-97, July.
    4. Ravi Anupindi & Ram Akella, 1993. "Diversification Under Supply Uncertainty," Management Science, INFORMS, vol. 39(8), pages 944-963, August.
    5. Brian Tomlin, 2006. "On the Value of Mitigation and Contingency Strategies for Managing Supply Chain Disruption Risks," Management Science, INFORMS, vol. 52(5), pages 639-657, May.
    6. Serguei Netessine & Nils Rudi, 2003. "Centralized and Competitive Inventory Models with Demand Substitution," Operations Research, INFORMS, vol. 51(2), pages 329-335, April.
    7. Candace Arai Yano & Hau L. Lee, 1995. "Lot Sizing with Random Yields: A Review," Operations Research, INFORMS, vol. 43(2), pages 311-334, April.
    8. Diwakar Gupta & William L. Cooper, 2005. "Stochastic Comparisons in Production Yield Management," Operations Research, INFORMS, vol. 53(2), pages 377-384, April.
    9. Awi Federgruen & Nan Yang, 2009. "Competition Under Generalized Attraction Models: Applications to Quality Competition Under Yield Uncertainty," Management Science, INFORMS, vol. 55(12), pages 2028-2043, December.
    10. Maqbool Dada & Nicholas C. Petruzzi & Leroy B. Schwarz, 2007. "A Newsvendor's Procurement Problem when Suppliers Are Unreliable," Manufacturing & Service Operations Management, INFORMS, vol. 9(1), pages 9-32, August.
    11. Yimin Wang & Wendell Gilland & Brian Tomlin, 2010. "Mitigating Supply Risk: Dual Sourcing or Process Improvement?," Manufacturing & Service Operations Management, INFORMS, vol. 12(3), pages 489-510, September.
    12. Kevin B. Hendricks & Vinod R. Singhal, 2005. "Association Between Supply Chain Glitches and Operating Performance," Management Science, INFORMS, vol. 51(5), pages 695-711, May.
    13. Xuan Zhao & Derek R. Atkins, 2008. "Newsvendors Under Simultaneous Price and Inventory Competition," Manufacturing & Service Operations Management, INFORMS, vol. 10(3), pages 539-546, September.
    14. Sammi Yu Tang & Panos Kouvelis, 2011. "Supplier Diversification Strategies in the Presence of Yield Uncertainty and Buyer Competition," Manufacturing & Service Operations Management, INFORMS, vol. 13(4), pages 439-451, October.
    15. Sarang Deo & Charles J. Corbett, 2009. "Cournot Competition Under Yield Uncertainty: The Case of the U.S. Influenza Vaccine Market," Manufacturing & Service Operations Management, INFORMS, vol. 11(4), pages 563-576, July.
    16. Steven A. Lippman & Kevin F. McCardle, 1997. "The Competitive Newsboy," Operations Research, INFORMS, vol. 45(1), pages 54-65, February.
    17. Mahmut Parlar, 1988. "Game theoretic analysis of the substitutable product inventory problem with random demands," Naval Research Logistics (NRL), John Wiley & Sons, vol. 35(3), pages 397-409, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhu, Chenbo & Hu, JianQiang, 2020. "Revenue management games with government mandate," Omega, Elsevier, vol. 93(C).
    2. Jiamuyan Xie, 2022. "Information Sharing in a Supply Chain with Asymmetric Competing Retailers," Sustainability, MDPI, vol. 14(19), pages 1-21, October.
    3. Jian Zhang & Shuang He & Juliang Zhang & T. C. Edwin Cheng, 2020. "Purchase and retrieval competition for seasonal produce," Naval Research Logistics (NRL), John Wiley & Sons, vol. 67(3), pages 161-184, April.
    4. Zhang, Peng & Xu, Xiaofeng & Shi, Victor & Zhu, Jing, 2020. "Simultaneous inventory competition and transshipment between retailers," International Journal of Production Economics, Elsevier, vol. 230(C).
    5. Wei Liu & Shiji Song & Ying Qiao & Han Zhao & Huachang Wang, 2020. "The Loss-Averse Newsvendor Problem with Random Yield and Reference Dependence," Mathematics, MDPI, vol. 8(8), pages 1-15, July.
    6. Dong, Binwei & Tang, Wansheng & Zhou, Chi & Ren, Yufei, 2021. "Is dual sourcing a better choice? The impact of reliability improvement and contract manufacturer encroachment," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 149(C).
    7. He, Shuang & Zhang, Jian & Zhang, Juliang & Cheng, T.C.E., 2022. "Production/inventory competition between firms with fixed-proportions co-production systems," European Journal of Operational Research, Elsevier, vol. 299(2), pages 497-509.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Seung Hwan Jung, 2020. "Offshore versus Onshore Sourcing: Quick Response, Random Yield, and Competition," Production and Operations Management, Production and Operations Management Society, vol. 29(3), pages 750-766, March.
    2. Yuan, Zhennan & Chen, Frank Y. & Yan, Xiaoming & Yu, Yugang, 2020. "Operational implications of yield uncertainty in mergers and acquisitions," International Journal of Production Economics, Elsevier, vol. 219(C), pages 248-258.
    3. Basu, Preetam & Avittathur, Balram, 2018. "Pricing and sourcing strategies for competing retailers in supply chains under disruption riskAuthor-Name: Kumar, Milan," European Journal of Operational Research, Elsevier, vol. 265(2), pages 533-543.
    4. Xiang Li, 2017. "Optimal procurement strategies from suppliers with random yield and all-or-nothing risks," Annals of Operations Research, Springer, vol. 257(1), pages 167-181, October.
    5. Long He & Ying Rong & Zuo‐Jun Max Shen, 2020. "Product Sourcing and Distribution Strategies under Supply Disruption and Recall Risks," Production and Operations Management, Production and Operations Management Society, vol. 29(1), pages 9-23, January.
    6. Maria C. Jansen & Osman Y. Özaltın, 2017. "Note on Cournot Competition Under Yield Uncertainty," Manufacturing & Service Operations Management, INFORMS, vol. 19(2), pages 305-308, May.
    7. Panos Kouvelis & Guang Xiao & Nan Yang, 2021. "Role of Risk Aversion in Price Postponement Under Supply Random Yield," Management Science, INFORMS, vol. 67(8), pages 4826-4844, August.
    8. Wang, Yimin & Xiao, Yixuan & Yang, Nan, 2014. "Improving reliability of a shared supplier with competition and spillovers," European Journal of Operational Research, Elsevier, vol. 236(2), pages 499-510.
    9. Erjie Ang & Dan A. Iancu & Robert Swinney, 2017. "Disruption Risk and Optimal Sourcing in Multitier Supply Networks," Management Science, INFORMS, vol. 63(8), pages 2397-2419, August.
    10. Bo He & He Huang & Kaifu Yuan, 2016. "Managing supply disruption through procurement strategy and price competition," International Journal of Production Research, Taylor & Francis Journals, vol. 54(7), pages 1980-1999, April.
    11. Silbermayr, Lena & Minner, Stefan, 2016. "Dual sourcing under disruption risk and cost improvement through learning," European Journal of Operational Research, Elsevier, vol. 250(1), pages 226-238.
    12. Cheong, Taesu & Song, Sang Hwa, 2013. "The value of information on supply risk under random yields," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 60(C), pages 27-38.
    13. Dongling Cai & Li Jiang, 2020. "The Bright and Dark Sides of Customer Switching," Production and Operations Management, Production and Operations Management Society, vol. 29(6), pages 1381-1396, June.
    14. Sarah Parlane & Ying-Yi Tsai, 2017. "Optimal Management of Supply Disruptions when Contracting with Unreliable, Risk-averse, Suppliers," Working Papers 201714, School of Economics, University College Dublin.
    15. Süleyman Demirel & Roman Kapuscinski & Man Yu, 2018. "Strategic Behavior of Suppliers in the Face of Production Disruptions," Management Science, INFORMS, vol. 64(2), pages 533-551, February.
    16. Svoboda, Josef & Minner, Stefan & Yao, Man, 2021. "Typology and literature review on multiple supplier inventory control models," European Journal of Operational Research, Elsevier, vol. 293(1), pages 1-23.
    17. Qi Feng & J. George Shanthikumar, 2018. "Supply and Demand Functions in Inventory Models," Operations Research, INFORMS, vol. 66(1), pages 77-91, 1-2.
    18. Sammi Yu Tang & Panos Kouvelis, 2011. "Supplier Diversification Strategies in the Presence of Yield Uncertainty and Buyer Competition," Manufacturing & Service Operations Management, INFORMS, vol. 13(4), pages 439-451, October.
    19. Huang, He & Xu, Hongyan, 2015. "Dual sourcing and backup production: Coexistence versus exclusivity," Omega, Elsevier, vol. 57(PA), pages 22-33.
    20. Jian Zhang & Shuang He & Juliang Zhang & T. C. Edwin Cheng, 2020. "Purchase and retrieval competition for seasonal produce," Naval Research Logistics (NRL), John Wiley & Sons, vol. 67(3), pages 161-184, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:navres:v:62:y:2015:i:2:p:107-126. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1002/(ISSN)1520-6750 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.