HANDBOOK OF QUANTITATIVE SUPPLY CHAIN ANALYSIS: Modeling in the E-Business Era

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HANDBOOK OF QUANTITATIVE SUPPLY CHAIN ANALYSIS: Modeling in the E-Business Era

Edited by

DAVID SIMCHI-LEVI Massachusetts Institute of Technology

S. DAVID WU Lehigh University

ZUO-JUN (MAX) SHEN University of Florida

~·

'' Springer Science+Business Media, LLC

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Contents

Chapter 1

Supply Chain Analysis and E-Business: An Overview David Simchi-Levi, S. David Wu and Z. Max Shen

1

1. Introduction 1 3 3 4 5 7 8 9 9

2. Main Components of the Handbook 2.1 Emerging Paradigms for Supply Chain Analysis 2.2 Auctions and Bidding 2.3 Supply Chain Coordinations in E-Business 2.4 Multi-Channel Coordination 2.5 Network Design, IT, and Financial Services.

3. Conclusions Acknowledgments

Part I Emerging Paradigms for Supply Chain Analysis

Chapter 2

Game Theory in Supply Chain Analysis Gerard P. Cachon and Serguei Netessine

13

1. Introduction 13 1.1 Scope and relation to the literature 14

2. Non-cooperative static games 14 2.1 Game setup 15 2.2 Best response functions and the equilibrium of the game 17 2.3 Existence of equilibrium 21 2.4 Uniqueness of equilibrium 29 2.5 Multiple equilibria 35 2.6 Comparative statics in games 36

3. Dynamic games 40 3.1 Sequential moves: Stackelberg equilibrium concept 40 3.2 Simultaneous moves: repeated and stochastic games 41 3.3 Differential games 45

4. Cooperative games 48 4.1 Games in characteristic form and the core of the game 49 4.2 Shapley value 50 4.3 Biform games 51

5. Signaling, Screening and Bayesian Games 52 5.1 Signaling Game 53 5.2 Screening 56 5.3 Bayesian games 57

vi

6. Summary and Opportunities References

58 59

Chapter 3 Supply Chain Intermediation: A Bargaining Theoretic Framework 67 S. David Wu

1. Introduction 67 2. Supply Chain Intermediation 70 3. Supply Chain Intermediary Theory 73

3.1 The Basic Settings 73 3.2 Mechanism Design and the Revelation Principle 74 3.3 Models of Supply Chain Intermediation 76

4. Bilateral Bargaining with Complete Information 77 4.1 Bilateral Bargaining to Divide the System Surplus 79 4.2 A Bilateral Supply-Chain Bargaining Model 81 4.3 The Subgame Perfect Equilibrium 82 4.4 Analysis of the Bargaining Game 85 4.5 Intermediary's Role in Price Setting, Searching, and

Matching 87 5. Bilateral Bargaining with Incomplete Information 89

5.1 The Basic Setting 90 5.2 The Direct Revelation Mechanism 92

6. Multilateral Trade with Incomplete Information 97 6.1 Multilateral Trade with Vertical Integration 97 6.2 Multilateral Trade with Markets 101

7. Related Work in the Supply Chain Literature and Research Opportunities 105

References 112

Chapter 4 Decentralized Decision Making in Dynamic Technological Systems:

The Principal-Agent Paradigm Stefanos Zenios

1. Background and Motivation 2. The Static Principal-Agent Model 3. The Dynamic Principal-Agent Model

3.1 The Principal's Problem 3.2 Step 1: The Static Problem. 3.3 Step 2: The Dynamic Problem.

4. A Model with Multiple Agents 5. A Production-Inventory System 6. A Service Delivery System 7. The Past and the Future 8. Concluding Remarks Acknowledgments References

Part II Auctions and Bidding

Chapter 5 Auctions, Bidding and Exchange Design

117

117 119 121 123 125 126 127 129 133 137 138 138 139

143

Contents

Jayant Kalagnanam and David C. Parkes 1. Introduction

1.1 A framework for auctions 1.2 Outline

2. Economic Considerations 2.1 Preliminaries 2.2 Mechanism Design 2.3 Competitive Equilibrium 2.4 Indirect Revelation Mechanisms

3. Implementation Considerations 3.1 Bidding Languages 3.2 Winner-Determination Complexity

4. Interactions between Computation and Incentives 4.1 Strategic Complexity 4.2 Communication Complexity 4.3 Valuation Complexity 4.4 Implementation Complexity

5. Specific Market Mechanisms 5.1 Combinatorial Auctions 5.2 Multi-unit Auctions 5.3 Multiattribute Auctions 5.4 Procurement Reverse Auctions 5.5 Capacity cons.trained allocation mechanisms 5.6 Double Auctions and Exchanges

6. Discussion References

Chapter 6

vii

143 144 146 146 147 148 157 159 164 164 166 179 180 181 182 183 186 186 189 192 194 196 197 200 204

Auctions and Pricing in E-Marketplaces 213 Wedad Elmaghraby

1. B2B E-Marketplaces 213 2. Current State of Pricing in B2B Marketplaces 215 3. Customizing Auctions- A Case Study of FreeMarkets 219

3.1 Auction Formats 221 3.2 Combating Collusion 224

4. Bidder Support in Auctions- Manugistics' NetWORKS Target Pricing™ 227

5. Future Directions for Research in Auction Theory 230 6. Precision Pricing- Manugistics' Networks Precision Pricing 232 7. Future Directions for Research in Price Discrimination 238 8. Conclusion 240 References 243

Chapter 7

Design of Combinatorial Auctions Sven de Vries and Rakesh V. Vohra

1. Introduction 2. Mechanism Design Perspective 3. Optimal Auctions 4. Efficient Auctions

4.1 The VCG Auction

247

247 249 250 254 255

Vlll

5. Implementing an Efficient Auction 5.1 Winner Determination 5.2 Supposed Problems with VCG 5.3 Ascending Implementations of VCG 5.4 Threshold and Collusion Problems 5.5 Other Ascending Auctions 5.6 Complexity of Communication

6. Interdependent Values 7. Two Examples

7.1 The German UMTS-Auction 7.2 Logistics Auctions

References

Part III Supply Chain Coordinations in E-Business

Chapter 8 The Marketing-Operations Interface Sergio Chayet, Wallace J. Hopp and Xiaowei Xu

1. Product Development 1.1 Conjoint Analysis For Concept Development 1.2 System Level and Detailed Design 1.3 Prototyping and Testing 1.4 Macro-Level Research

2. Sales 2.1 Pricing 2.2 Lead Time Quoting 2.3 Quality Management 2.4 Product Variety

3. Production/Delivery 4. Service

4.1 Previous Research 4.2 Research Opportunities

5. Conclusions References

Chapter 9

257 257 261 264 276 277 278 278 281 281 284 287

295

298 299 301 304 305 306 307 309 311 312 313 316 316 317 319 322

Coordination of Pricing and Inventory Decisions: A Survey and 335 Classification

L. M. A. Chan, Z. J. Max Shen, David Simchi-Levi and Julie L. Swann 1. Introduction 335

1.1 Motivation 335 1.2 Scope 336 1.3 Classification and Outline 338

2. Single Period Models 340 3. Multiple Period Models 343

3.1 Models to Explain Price Realizations 343 3.2 General Pricing and Production Models 344 3.3 Retail, Clearance, and Promotion 351 3.4 Fixed Pricing 358

4. Extension Areas 359 4.1 Multiple Products, Classes, and Service levels 359 4.2 Capacity as a Decision 366

Contents ix

4.3 Supply Chain Coordination 4.4 Competition 4.5 Demand Learning and Information

5. Industry

367 369 373 376 376 376 377 378 379 382

5.1 Dynamic Pricing Practice 5.2 Related Research 5.3 Price Discrimination in Practice 5.4 Potential problems with Dynamic Pricing

6. Conclusions and Future Research References

Chapter 10 Collaborative Forecasting and its Impact on Supply Chain Performance 393 Yossi Aviv

1. Notation and Preliminaries 402 2. Common Approaches for Modeling Demand Uncertainty and

Forecast Evolution in the Inventory Management Literature 404 2.1 Demand models with unknown parameters 404 2.2 A Markov-modulated demand process 406 2.3 A linear state-space model 407

3. Common Types of Single-Location Inventory Control Policies 410 3.1 Dynamic models for inventory management 410 3.2 Heuristic policies 416 3.3 An adaptive replenishment policy for the linear state-

space model 419 4. Models for Decentralized Forecasting Processes 421

4.1 The orders generated by the retailer 422 4.2 Enriched information structures 425 4.3 Assessment of the benefits of information sharing 428

5. An inventory model of collaborative forecasting 429 5.1 Installation-based inventory systems 430 5.2 Echelon-based inventory systems 432

6. Cost analysis 435 6.1 Cost assessment 435 6.2 Policy coordination in the supply chain 437 6.3 Decoupled two-level inventory systems 439 6.4 Results from the study of CF 440

7. Summary 442 References 443

Chapter 11 Available to Promise Michael 0. Ball, Chien- Yu Chen and Zhen- Ying Zhao

1. Introduction 1.1 Push-Pull Framework 1.2 Available to Promise (ATP)

2. Business Examples 2.1 Overview of Conventional ATP 2.2 Toshiba Electronic Product ATP System 2.3 Dell Two-stage Order Promising Practice 2.4 Maxtor ATP Execution for Hard Disk Drive 2.5 ATP Functionality in Commercial Software

3. ATP Modelling Issues

447

447 448 449 449 449 451 452 453 454 455

X

3.1 ATP Implementation Dimensions 455 3.2 Factors Affecting ATP Implementations 456 3.3 Push vs. Pull ATP Models 459

4. Push-Based ATP Models 461 4.1 Push ATP Rules and Policy Analysis 462 4.2 Deterministic Optimization-Based Push ATP Models 463 4.3 Stochastic Push ATP Models 467

5. Pull-Based ATP Models 469 5.1 Pull-Based ATP Models for an MTS Production Envi-

ronment 470 5.2 Real Time Order Promising and Scheduling 471 5.3 Optimization-Based Batch ATP Models 473 5.4 Experimental Implementation 477

6. Conclusions 480 Acknowledgments 480 References 481

Chapter 12 Due Date Management Policies 485 Pmar K eskinocak and Sridhar Tayur

1. Characteristics of a Due Date Management Problem 487 1.1 Due Date Management Decisions 487 1.2 Dimensions of a Due Date Management Problem 489 1.3 Objectives of Due Date Management 490 1.4 Solution Approaches for Due Date Management Prob-

lems 494 2. Scheduling Policies in Due Date Management 494 3. Offline Models for Due Date Management 499

3.1 Equal Order Arrival Times 500 3.2 Distinct Order Arrival Times 501

4. Online Models for Due Date Management 503 4.1 Due-Date Setting Rules 506 4.2 Choosing the Parameters of Due Date Rules 520 4.3 Mathematical Models for Setting Due Dates 521

5. Due Date Management with Service Constraints 523 6. Due Date Management with Price and Order Selection Deci-

sions 530 6.1 Due Date Management with Order Selection Decisions

(DDM-OS) 531 6.2 Due Date Management with Price and Order Selection

Decisions (DDM-P) 536 7. Conclusions and Future Research Directions 542 References 54 7

Part IV Multi-Channel Coordination

Chapter 13 Modeling Conflict and Coordination in Multi-channel Distribution 557

Systems: A Review Andy A. Tsay and Narendra Agrawal

1. Introduction 557 1.1 Business Setting 557

Contents

1.2 Scope of Discussion 1.3 Contribution

2. Related Literature 2.1 Descriptive research 2.2 Analytical research

3. Analytical Research on Conflict and Coordination in Multi­Channel Systems With Both Manufacturer-Owned And Inter­mediated Channels 3.1 Manufacturer-owned channel is direct sales 3.2 Manufacturer-owned channel contains physical stores 3.3 Discussion

4. Research Opportunities 4.1 Representing channel characteristics 4.2 Evaluating distribution strategies 4.3 Concluding remarks

Acknowledgments References

Chapter 14

xi

559 561 562 562 564

571 574 582 585 586 586 594 595 595 597

Supply chain structures on the Internet and the role of marketing- 607 operations interaction

Serguei Netessine and Nils Rudi 1. Introduction 607 2. Literature survey 611 3. Notation and modeling assumptions 614 4. Supply chain models without coordination 616

4.1 Model I- vertically integrated supply chain 616 4.2 Model T - traditional supply chain 618 4.3 Model D - drop-shipping 619 '4.4 Comparative analysis of the stationary policies 625

5. Supply chain coordination 629 6. Numerical experiments 632 7. Conclusions and discussion 636 References 639

Chapter 15 Coordinating 'fraditional and Internet Supply Chains 643 Kyle D. Cattani, Wendell G. Gilland and Jayashankar M. Swaminathan

1. Introduction 1.1 Overview of Research 1.2 Procurement 1.3 Pricing 1.4 Distribution I Fulfillment

2. Procurement 2.1 Coordinating 'fraditional and Internet Procurement 2.2 Formation of Consortia

3. Pricing 3.1 Independent Competition 3.2 Bricks and Clicks 3.3 Forward Integration 3.4 Full Integration

4. Distribution I Fulfilment

643 644 644 646 647 648 648 655 656 656 660 665 668 668

xii

4.1 Direct channel as outlet 4.2 Direct channel as Service buffer

5. Conclusion References

669 671 674 675

Part V Network Design, IT, and Financial Services

Chapter 16 Using a Structural Equations Modeling Apj>roach to Design and

Monitor Strategic International Facility Networks Panos Kouvelis and Charles L. Munson

1. Introduction 1.1 A conceptual framework to Classify Global Network

Structures 1.2 Literature Review 1.3 Research Contributions

2. Structural Equations Model 2.1 Problem Statement 2.2 Motivation for the Structural Equations Modeling Ap­

proach 2.3 Framework Measures (Independent Variables) 2.4 Proxies for the Global Network Structure Dimensions

(Dependent Variables) 2.5 Model Development 2.6 Model Validation 2. 7 Other Products

3. Government Incentives: Tax Holidays and Subsidized Loans 4. Conclusion Acknowledgments Appendix: MIP Model for Facility Location References

Chapter 17

681

681

681 682 685 686 686

686 687

689 689 695 696 696 701 702 702 708

Integrated Production and Distribution Operations: Taxonomy, 711 Models, and Review

Zhi-Long Chen 1. · Introduction 711 2. Model Classification 713 3. Production - Transportation Problems 715 4. Joint Lot Sizing and Finished Product Delivery Problems 717 5. Joint Raw Material Delivery and Lot Sizing Problems 720 6. General Tactical 721 7. Joint Job Processing and Finished Job Delivery Problems 729 8. Directions for Future Research 732 Acknowledgments 734 References 735

Chapter 18 Next Generation ERP Systems: Scalable and Decentralized Paradigms 7 4 7 Paul M. Griffin and Christina R. Scherrer

1. Introduction 747

Contents

2. A Brief History 3. Current ERP Functionality 4. Implementation Issues 5. Scalability and ERP

5.1 New Developments in Enterprise Scalability 5.2 Standards in ERP

6. Decentralized ERP 6.1 e-Market Intermediaries 6.2 Outsourced ERP Systems

7. Current Enterprise Issues: ERPII and ECM 8. Conclusions References

Chapter 19

xiii

749 751 755 759 759 763 766 767 770 772 775 778

Delivering e-banking services: An emerging internet business model 783 and a case study

Andreas C. Soteriou and Stavros A. Zenios 1. Introduction 783 2. The changing landscape of demand for financial services 785 3. The changing landscape of supply of financial services 787 4. An Emerging e-Banking Model 790 5. The design of a web-based personal asset allocation system 794

5.1 The integrated decision support system 796 5.2 Business plan for the deployment of the system 797 5.3 Bringing it altogether: Lessons from the implementa-

tion of the system 800 6. Concluding Remarks 802 References 803

Index 805