IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v218y2012i1p113-123.html
   My bibliography  Save this article

Ship-to-order supplies: Contract breachability and the impact of a manufacturer-owned direct channel

Author

Listed:
  • Kogan, Konstantin

Abstract

We address the issue of contract breachability in a supply chain involving a retailer and a manufacturer operating under ship-to-order contract terms and stochastic demands. The manufacturer is required to fulfill the retailer’s demands on a continuous basis with little or no advance notice. The issue in such an environment is whether the retailer can “naively” assume that she will get a very high fill rate from the manufacturer and therefore has no need for contract penalties in case the manufacturer’s inventory falls short. We suggest a stochastic calculus framework to study the problem and derive a condition when the retailer’s naïve assumption is justified since the probability of stock-outs of the manufacturer is negligible. That is, the ship-to-order contract will not be breached and the fill rate will be more than a predetermined threshold. Furthermore we find that although the manufacturer-owned direct channel generates more revenue and may reduce the volatility of both inventory and production orders, the ratio between expected direct channel and retail sales affects the benefits.

Suggested Citation

  • Kogan, Konstantin, 2012. "Ship-to-order supplies: Contract breachability and the impact of a manufacturer-owned direct channel," European Journal of Operational Research, Elsevier, vol. 218(1), pages 113-123.
    • Handle: RePEc:eee:ejores:v:218:y:2012:i:1:p:113-123
    DOI: 10.1016/j.ejor.2011.10.022
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377221711009416
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ejor.2011.10.022?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
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Chang,Fwu-Ranq, 2009. "Stochastic Optimization in Continuous Time," Cambridge Books, Cambridge University Press, number 9780521541947.
    2. Jehoshua Eliashberg & Richard Steinberg, 1987. "Marketing-Production Decisions in an Industrial Channel of Distribution," Management Science, INFORMS, vol. 33(8), pages 981-1000, August.
    3. Haurie, A., 1995. "Time scale decomposition in production planning for unreliable flexible manufacturing systems," European Journal of Operational Research, Elsevier, vol. 82(2), pages 339-358, April.
    4. Antony Svoronos & Paul Zipkin, 1988. "Estimating the Performance of Multi-Level Inventory Systems," Operations Research, INFORMS, vol. 36(1), pages 57-72, February.
    5. Stephen C. Graves, 1985. "A Multi-Echelon Inventory Model for a Repairable Item with One-for-One Replenishment," Management Science, INFORMS, vol. 31(10), pages 1247-1256, October.
    6. Gérard P. Cachon & Taylor Randall & Glen M. Schmidt, 2007. "In Search of the Bullwhip Effect," Manufacturing & Service Operations Management, INFORMS, vol. 9(4), pages 457-479, April.
    7. Srinivasan Raghunathan & Arthur B. Yeh, 2001. "Beyond EDI: Impact of Continuous Replenishment Program (CRP) Between a Manufacturer and Its Retailers," Information Systems Research, INFORMS, vol. 12(4), pages 406-419, December.
    8. Frank Chen & Zvi Drezner & Jennifer K. Ryan & David Simchi-Levi, 2000. "Quantifying the Bullwhip Effect in a Simple Supply Chain: The Impact of Forecasting, Lead Times, and Information," Management Science, INFORMS, vol. 46(3), pages 436-443, March.
    9. Yossi Aviv, 2007. "On the Benefits of Collaborative Forecasting Partnerships Between Retailers and Manufacturers," Management Science, INFORMS, vol. 53(5), pages 777-794, May.
    10. Kogan, Konstantin & Herbon, Avi, 2008. "A supply chain under limited-time promotion: The effect of customer sensitivity," European Journal of Operational Research, Elsevier, vol. 188(1), pages 273-292, July.
    11. Desai, Vijay S., 1996. "Interactions between members of a marketing-production channel under seasonal demand," European Journal of Operational Research, Elsevier, vol. 90(1), pages 115-141, April.
    Full references (including those not matched with items on IDEAS)

    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. Li Chen & Hau L. Lee, 2012. "Bullwhip Effect Measurement and Its Implications," Operations Research, INFORMS, vol. 60(4), pages 771-784, August.
    2. Robert L. Bray & Haim Mendelson, 2012. "Information Transmission and the Bullwhip Effect: An Empirical Investigation," Management Science, INFORMS, vol. 58(5), pages 860-875, May.
    3. QU, Zhan & RAFF, Horst, 2023. "Two-part tariffs, inventory stockpiling, and the bullwhip effect," European Journal of Operational Research, Elsevier, vol. 308(1), pages 201-214.
    4. Minner, Stefan & Transchel, Sandra, 2017. "Order variability in perishable product supply chains," European Journal of Operational Research, Elsevier, vol. 260(1), pages 93-107.
    5. de Kok, Ton & Grob, Christopher & Laumanns, Marco & Minner, Stefan & Rambau, Jörg & Schade, Konrad, 2018. "A typology and literature review on stochastic multi-echelon inventory models," European Journal of Operational Research, Elsevier, vol. 269(3), pages 955-983.
    6. Li Chen & Hau L. Lee, 2009. "Information Sharing and Order Variability Control Under a Generalized Demand Model," Management Science, INFORMS, vol. 55(5), pages 781-797, May.
    7. Pastore, Erica & Alfieri, Arianna & Zotteri, Giulio, 2019. "An empirical investigation on the antecedents of the bullwhip effect: Evidence from the spare parts industry," International Journal of Production Economics, Elsevier, vol. 209(C), pages 121-133.
    8. Wang, Zhaodong & Wang, Xin & Ouyang, Yanfeng, 2015. "Bounded growth of the bullwhip effect under a class of nonlinear ordering policies," European Journal of Operational Research, Elsevier, vol. 247(1), pages 72-82.
    9. Ma, Yungao & Wang, Nengmin & He, Zhengwen & Lu, Jizhou & Liang, Huigang, 2015. "Analysis of the bullwhip effect in two parallel supply chains with interacting price-sensitive demands," European Journal of Operational Research, Elsevier, vol. 243(3), pages 815-825.
    10. Zhang, Xiaolong & Burke, Gerard J., 2011. "Analysis of compound bullwhip effect causes," European Journal of Operational Research, Elsevier, vol. 210(3), pages 514-526, May.
    11. Chew, E. P. & Johnson, L. A., 1996. "Service level approximations for multiechelon inventory systems," European Journal of Operational Research, Elsevier, vol. 91(3), pages 440-455, June.
    12. Yu, Yugang & Luo, Yifei & Shi, Ye, 2022. "Adoption of blockchain technology in a two-stage supply chain: Spillover effect on workforce," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 161(C).
    13. Warburton, Roger D.H. & Hodgson, J.P.E. & Nielsen, E.H., 2014. "Exact solutions to the supply chain equations for arbitrary, time-dependent demands," International Journal of Production Economics, Elsevier, vol. 151(C), pages 195-205.
    14. Axsater, Sven & Zhang, Wen-Fa, 1999. "A joint replenishment policy for multi-echelon inventory control," International Journal of Production Economics, Elsevier, vol. 59(1-3), pages 243-250, March.
    15. Gunasekaran, Angappa & Ngai, Eric W.T., 2009. "Modeling and analysis of build-to-order supply chains," European Journal of Operational Research, Elsevier, vol. 195(2), pages 319-334, June.
    16. Ravi Kumar, K. & Loomba, Arvinder P. S. & Hadjinicola, George C., 2000. "Marketing-production coordination in channels of distribution," European Journal of Operational Research, Elsevier, vol. 126(1), pages 189-217, October.
    17. Li Chen & Wei Luo & Kevin Shang, 2017. "Measuring the Bullwhip Effect: Discrepancy and Alignment Between Information and Material Flows," Manufacturing & Service Operations Management, INFORMS, vol. 19(1), pages 36-51, February.
    18. Atkins, Derek & Liang, Liping, 2010. "A note on competitive supply chains with generalised supply costs," European Journal of Operational Research, Elsevier, vol. 207(3), pages 1316-1320, December.
    19. Avi Herbon & Konstantin Kogan, 2014. "Time-dependent and independent control rules for coordinated production and pricing under demand uncertainty and finite planning horizons," Annals of Operations Research, Springer, vol. 223(1), pages 195-216, December.
    20. Hau L. Lee & V. Padmanabhan & Seungjin Whang, 2004. "Comments on "Information Distortion in a Supply Chain: The Bullwhip Effect"," Management Science, INFORMS, vol. 50(12_supple), pages 1887-1893, December.

    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:eee:ejores:v:218:y:2012:i:1:p:113-123. 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eor .

    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.