a principal agent problem with heterogeneous demand distributions for a carbon capture and storage system abstract mechanism design problems optimize contract offerings from a principal to different types of agents who have private information about their demands for a product or a service we study the implications of uncertainty in agents demands on the principal s contracts specifically we consider the setting where agents demands follow heterogeneous distributions and the principal offers a menu of contracts stipulating quantities and transfer payments for each demand distribution we present analytical solutions for the special case when there are two distributions each taking two discrete values as well as a method for deriving analytical solutions from numerical solutions we describe one application of the model in carbon capture and storage systems to demonstrate various types of optimal solutions and to obtain managerial insights

performance contracting in after sales service supply chains performance based contracting is reshaping service support supply chains in capital intensive industries such as aerospace and defense known as power by the hour in the private sector and as performance based logistics pbl in defense contracting it aims to replace traditionally used fixed price and cost plus contracts to improve product availability and reduce the cost of ownership by tying a supplier s compensation to the output value of the product generated by the customer buyer to analyze implications of performance based relationships we introduce a multitask principal agent model to support resource allocation and use it to analyze commonly observed contracts in our model the customer principal faces a product availability requirement for the uptime of the end product the customer then offers contracts contingent on availability to n suppliers agents of the key subsystems used in the product who in turn exert cost reduction efforts and set spare parts inventory investment levels we show that the first best solution can be achieved if channel members are risk neutral when channel members are risk averse we find that the second best contract combines a fixed payment a cost sharing incentive and a performance incentive furthermore we study how these contracts evolve over the product deployment life cycle as uncertainty in support cost changes finally we illustrate the application of our model to a problem based on aircraft maintenance data and show how the allocation of performance requirements and contractual terms change under various environmental assumptions

optimizing delivery lead time inventory placement in a two stage production distribution system in this paper we study a system composed of a supplier and buyer s we assume that the buyer faces random demand with a known distribution function the supplier faces a known production lead time the main objective of this study is to determine the optimal delivery lead time and the resulting location of the system inventory in a system with a single supplier and a single buyer it is shown that system inventory should not be split between a buyer and supplier based on system parameters of shortage and holding costs production lead times and standard deviations of demand distributions conditions indicating when the supplier or buyer s should keep the system inventory are derived the impact of changes to these parameters on the location of system inventory is examined for the case with multiple buyers it is found that the supplier holds inventory for the buyers with the smallest standard deviations while the buyers with the largest standard deviations hold their own inventory

a resource portfolio model for equipment investment and allocation of semiconductor testing industry profitable but risky semiconductor testing market has led companies in the industry to carefully seek to maximize their profits by developing a proper resource portfolio plan for simultaneously deploying resources and selecting the most profitable orders various important factors such as resource investment alternatives trade offs between the price and speed of equipment and capital time value further increase the complexity of the simultaneous resource portfolio problem this study develops a simultaneous resource portfolio decision model as a non linear integer programming and proposes a genetic algorithm to solve it efficiently the proposed method is employed in the context of semiconductor testing industry to support decisions regarding equipment investment alternatives including new equipment procurement rent and transfer by outsourcing and phasing outing for simultaneous resources such as testers and handlers and task allocation experiments have showed that our approach in contrast to an optimal solution tool obtains a near optimal solution in a relatively short computing time

strategic commitments for an optimal capacity decision under asymmetric forecast information we study the important problem of how to assure credible forecast information sharing between a supplier and a manufacturer the supplier is responsible for acquiring the necessary capacity before receiving an order from the manufacturer who possesses private forecast information for her end product we address how different contracts affect the supplier s capacity decision and hence the profitability of the supplier and the manufacturer we fully develop two contracts and provide explicit formulae to enable credible forecast information sharing the first is a nonlinear capacity reservation contract under which the manufacturer agrees to pay a fee to reserve capacity the second is an advance purchase contract under which the manufacturer is induced to place a firm order before the supplier secures the component capacity used to build the end product these contracts serve a strategic role in information sharing the capacity reservation contract enables the supplier to detect the manufacturer s private forecast information while the advance purchase contract enables the manufacturer to signal her forecast information we show that channel coordination is possible even under asymmetric forecast information by combining the advance purchase contract with an appropriate payback agreement through our structural and numerical results we also show that the degree of forecast information asymmetry and the risk adjusted profit margin are two important drivers that determine supply chain efficiency and which contract to adopt

inventory and investment in setup and quality operations under return on investment maximization in this paper we construct and analyze a return on investment roi maximization model for inventory and capital investment in setup and quality operations under an investment budget constraint specifically we show how such an roi maximization model can be formulated and derive analytical results such as the conditions under which the inventory is reduced and for the determination of the unique global optimal solution in addition by applying the reformulation linearization technique rlt we show via numerical examples how this nonconvex optimization model can be solved effectively and how rlt may produce superior results to those from the conventional cut across the board rule cabr various managerial insights are provided throughout the paper for example as the investment budget increases or decreases a fundamental shift of investment strategies setup cost reduction vs quality improvement may be necessary so as to maximize roi

supply chain coordination with multiple shipments the optimal inventory subsidizing contracts we study a supply chain involving a supplier retailer relationship when production lead time is long and the selling season is short the retailer has to place an order ahead of the season which resembles the classical newsvendor model however we consider the situation when the supplier agrees to deliver the order in multiple shipments in the season and then the retailer needs to determine the quantity and or timing of each shipment under a centralized setting we derive the optimal quantity and or timing decisions of the retailer under a decentralized setting incentive misalignment arises from ineffective allocation of inventory costs between the parties in addition to the well known double marginalization effect hence we devise an incentive contract which involves a risk sharing mechanism at the end of the season and an inventory subsidizing scheme for the entire season in practice the inventory subsidizing scheme can be implemented in different ways such as a direct subsidizing scheme o

dynamic bargaining in a supply chain with asymmetric demand information we analyze a dynamic bargaining game in which a seller and a buyer negotiate over quantity and payment to trade for a product both firms are impatient and they make alternating offers until an agreement is reached the buyer is privately informed about his type which can be high or low the high type s demand is stochastically larger than the low type s in the dynamic negotiation process the seller can screen whereas the buyer can signal information through their offers and the buyer has an endogenous and type dependent reservation profit with rational assumptions on the seller s belief structure we characterize the perfect bayesian equilibrium of the bargaining game interestingly we find that both quantity distortion and information rent may be avoided depending on the firms relative patience and the seller may reach an agreement with either the high type or the low type first or with both simultaneously furthermore we explore our model to characterize the effect of demand forecasting accuracy on firm profitability we find that improved demand forecast benefits the buyer but hurts the seller when the buyer s forecasting accuracy is low however once the buyer s forecasting accuracy exceeds a threshold both firms will benefit from further improvement of the forecast this observation makes an interesting contrast to previous findings based on the one shot principal agent model in which improvement of forecasting accuracy mostly leads to a win lose outcome for the two firms and the buyer has an incentive to improve his forecasting accuracy only when it is extremely low this paper was accepted by yossi aviv operations management

lower bounds for multi echelon stochastic inventory systems we establish lower bounds on the minimum cost of managing certain production distribution networks with setup costs at all stages and stochastic demands these networks include serial assembly and one warehouse multi retailer systems we obtain the bounds through novel cost allocation schemes we evaluate the bounds performance for one warehouse multi retailer systems by comparing them with simple heuristic policies the bounds are quite tight for systems with a small number of retailers we also present simplified proof of known optimality results for serial and assembly systems

competitive and cooperative inventory policies in a two stage supply chain we investigate a two stage serial supply chain with stationary stochastic demand and fixed transportation times inventory holding costs are charged at each stage and each stage may incur a consumer backorder penalty cost e g the upper stage the supplier may dislike backorders at the lower stage the retailer we consider two games in both the stages independently choose base stock policies to minimize their costs the games differ in how the firms track their inventory levels in one the firms are committed to tracking echelon inventory in the other they track local inventory we compare the policies chosen under this competitive regime to those selected to minimize total supply chain costs i e the optimal solution we show that the games nearly always have a unique nash equilibrium and it differs from the optimal solution hence competition reduces efficiency furthermore the two games equilibria are different so the tracking method influences strategic behavior we show that the system optimal solution can be achieved as a nash equilibrium using simple linear transfer payments the value of cooperation is context specific in some settings competition increases total cost by only a fraction of a percent whereas in other settings the cost increase is enormous we also discuss stackelberg equilibria

preservation technology investment for deteriorating inventory abstract the objective of this study is to develop a deteriorating inventory policy when the retailer invests on the preservation technology to reduce the rate of product deterioration a solution procedure is presented to determine an optimal replenishment cycle shortage period order quantity and preservation technology cost such that the total profit per unit time is maximized a numerical example and sensitivity analysis are presented to illustrate the model

promised lead time contracts under asymmetric information we study the important problem of how a supplier should optimally share the consequences of demand uncertainty i e the cost of inventory excesses and shortages with a retailer in a two level supply chain facing a finite planning horizon in particular we characterize a multiperiod contract form the promised lead time contract that reduces the supplier s risk from demand uncertainty and the retailer s risk from uncertain inventory availability under the contract terms the supplier guarantees on time delivery of complete orders of any size after the promised lead time we characterize the optimal promised lead time and the corresponding payments that the supplier should offer to minimize her expected inventory cost while ensuring the retailer s participation in such a supply chain the retailer often holds private information about his shortage cost or his service level to end customers hence to understand the impact of the promised lead time contract on the supplier s and the retailer s performance we study the system under local control with full information and local control with asymmetric information by comparing the results under these information scenarios to those under a centrally controlled system we provide insights into stock positioning and inventory risk sharing we quantify for example how much and when the supplier and the retailer overinvest in inventory as compared to the centrally controlled supply chain we show that the supplier faces more inventory risk when the retailer has private service level information we also show that a supplier located closer to the retailer is affected less by information asymmetry next we characterize when the supplier should optimally choose not to sign a promised lead time contract and consider doing business under other settings in particular we establish the optimality of a cutoff level policy finally under both full and asymmetric service level information we characterize conditions when optimal promised lead times take extreme values of the feasible set yielding the supplier to assume all or none of the inventory risk hence the name all or nothing solution we conclude with numerical examples demonstrating our results

the impact of demand uncertainty on consumer subsidies for green technology adoption this paper studies government subsidies for green technology adoption while considering the manufacturing industry s response government subsidies offered directly to consumers impact the supplier s production and pricing decisions our analysis expands the current understanding of the price setting newsvendor model incorporating the external influence from the government who is now an additional player in the system we quantify how demand uncertainty impacts the various players government industry and consumers when designing policies we further show that for convex demand functions an increase in demand uncertainty leads to higher production quantities and lower prices resulting in lower profits for the supplier with this in mind one could expect consumer surplus to increase with uncertainty in fact we show that this is not always the case and that the uncertainty impact on consumer surplus depends on the trade off between lower prices and the possibility of underserving customers with h

controlling for supplier switching in the presence of real options and asymmetric information abstract applying a real option approach this paper examines how asymmetric information alters key variables of a firm s supplier switching process such as the timing of contracting hurried versus delayed contracting transfer payments set up switching and abandonment decisions in a symmetric information setting delayed contracting is unambiguously beneficial abandoning the once established relation with the entrant supplier is never an issue in contrast under asymmetric information hurried contracting with potentially abandoning the relation can be beneficial consistent with adverse selection models we find that under delayed contracting in equilibrium the firm switches less frequently to the entrant supplier switching inertia surprisingly we also find that under hurried contracting the firm switches more frequently to the entrant supplier switching acceleration and may abandon the relation finally we study how these key variables of the supplier switching process change when also the incumbent supplier has private information two sided asymmetric information case

a supplier s optimal quantity discount policy under asymmetric information in the supply chain literature an increasing body of work studies how suppliers can use incentive schemes such as quantity discounts to influence buyers ordering behaviour thus reducing the supplier s and the total supply chain s costs various functional forms for such incentive schemes have been proposed but a critical assumption always made is that the supplier has full information about the buyer s cost structure we derive the optimal quantity discount policy under asymmetric information and compare it to the situation where the supplier has full information

dynamics of the trade balance and the terms of trade the j curve the authors provide a theoretical interpretation of two features of international data the countercyclical movements in net exports and the tendency for the trade balance to be negatively correlated with current and future movements in terms of trade but positively correlated with past movements they document the same properties in a two country stochastic growth model in which trade fluctuations reflect in large part the dynamics of capital formation the authors find that their general equilibrium perspective is essential the relation between the trade balance and the terms of trade depends critically on the source of fluctuations copyright 1994 by american economic association

consumption and real exchange rates in dynamic economies with non traded goods abstract we examine the possibility that non traded goods may account for several striking features of international macroeconomic data large persistent deviations from purchasing power parity small correlations of aggregate consumption fluctuations across countries and substantial international real interest rate differentials a dynamic exchange economy is used to show that non traded goods in principle can account for each of these phenomena in the theory there is a close relation between fluctuations in consumption ratios and those in bilateral real exchange rates but we find little evidence for this relation in time series data for eight oecd countries

impact of product pricing and timing of investment decisions on supply chain co opetition abstract in supply chain co opetition firms simultaneously compete and co operate in order to maximize their profits we consider the nature of co opetition between two firms the product supplier invests in the technology to improve quality and the purchasing firm buyer invests in selling effort to develop the market for the product before uncertainty in demand is resolved we consider three different decision making structures and discuss the optimal configuration from each firm s perspective in case 1 the supplier invests in product quality and sets the wholesale price for the product the buyer then exerts selling effort to develop the market and following demand potential realization sets the resale price in case 2 the supplier invests in product quality followed by the buyer s investment in selling effort then after demand potential is observed the supplier sets the wholesale price and the buyer sets the resale price finally in case 3 both firms simultaneously invest in product quality and selling effort respectively subsequently observing the demand potential the supplier sets the wholesale price and the buyer sets the resale price we compare all configuration options from both the perspective of the supplier and the buyer and show that the level of investment by the firms depends on the nature of competition between them and the level of uncertainty in demand our analysis reveals that although configuration 1 results in the highest profits for the integrated channel there is no clear dominating preference on system configuration from the perspective of both parties the incentives of the co opetition partners and the investment levels are mainly governed by the cost structure and the level of uncertainty in demand we examine and discuss the relation between system parameters and the incentives in desiging the supply contract structure

an application of tournament genetic algorithm in a marketing oriented economic production lot size model for deteriorating items abstract the goal of this research is to discuss an application of tournament genetic algorithm tga for solving an economic production lot size epl model in this model the production rate of the item is finite and it is assumed to be a decision variable the demand rate is also a deterministic function of selling price and the marketing cost the selling price per unit item is determined by a mark up over the unit production cost the deterioration rate at any instant is a linear increasing decreasing function of time partial backlogging shortages are allowed with a variable rate dependent on the length of the waiting time up to the starting of next production this model is formulated as a highly non linear constrained optimization problem to solve this problem a tga with steady state selection whole arithmetic crossover and non uniform mutation has been developed and applied the model has been illustrated with three numerical examples finally sensitivity analyses have been shown graphically to study the variations of the average profit with respect to the different parameters

vertical contracts in a supply chain and the bullwhip effect this paper shows that decentralized supply chains in which upstream firms use linear wholesale prices may experience lower upstream production and downstream sales volatility than vertically inte

procuring fast delivery sole sourcing with information asymmetry this paper studies a queuing model in which a buyer sources a good or service from a single supplier chosen from a pool of suppliers the buyer seeks to minimize the sum of her procurement and operating costs the latter of which depends on the suppliers lead time the selected supplier can regulate his lead time but faster lead times are costly although the buyer selects the supplier to source from possibly via an auction and dictates the contractual terms the buyers bargaining power is limited by asymmetric information the buyer only has an estimate of the suppliers costs while the suppliers know their costs precisely we identify a procurement mechanism that minimizes the buyers total cost procurement plus operating this mechanism is not simple it is a numerically derived nonlinear menu of contracts therefore we study several simpler mechanisms e g one that charges a late fee and one that specifies a fixed lead time requirement no menus no nonlinear functions we find that simple mechanisms are nearly optimal generally within 1 of optimal because asymmetric information conveys significant protection to the supplier i e the supplier is able to retain most of the benefit of having a lower cost renegotiation is another concern with the optimal mechanism because it does not minimize the supply chains cost the firms can be both better off if they throw away the contract and start over interestingly we find that the potential gain from renegotiation is relatively small with either the optimal or our simple mechanisms we conclude that our simple mechanisms are quite attractive along all relevant dimensions buyers performance supply chain performance simplicity and robustness to renegotiation

comments on pareto weights as wedges in two country models by d backus c coleman a ferriere and s lyon abstract backus coleman ferriere and lyon study how the formulations of preferences and shocks affect the behavior of macroeconomic and financial aggregates in a simple endowment economy with no frictions their exercise could be considered as a first step of a rich research program that can further our understanding of international business cycles after discussing the fundamental propagation mechanisms in standard international business cycle models i put their contribution in a broader context i conclude with a summary of possible research questions to be explored in future work

quality improvement and setup reduction in the joint economic lot size model abstract the co maker concept has become accepted practice in many successful global business organizations this fact has resulted in a class of inventory models known as joint economic lot size jels models heretofore such models assumed perfect quality production on the part of the vendor this paper relaxes this assumption and proposes a quality adjusted jels model in addition classical optimization methods are used to derive models for the cases of setup cost reduction quality improvement and simultaneous setup cost reduction and quality improvement for the quality adjusted jels numerical results are presented for each of these models comparisons are made to the basic quality adjusted model results indicate that all three policies exhibit significantly reduced total cost however the simultaneous model results in the lowest cost overall and the smallest lot size this suggests a synergistic impact of continuous improvement programs that focus on both setup and quality improvement of the vendor s production process sensitivity analysis indicates that the simultaneous model is robust and representative of practice

technical note an optimal policy for joint dynamic price and lead time quotation for a dynamic joint price and lead time quotation problem with a fairly general demand function we show that the policy consisting of a threshold and a reward maximizing lead time is optimal this policy offers some interesting managerial insights under this policy finding the exact optimal quotation can be accomplished by single variable policy iterations of unimodal value functions

information acquisition for capacity planning via pricing and advance selling when to stop and act this paper investigates a capacity planning strategy that collects commitments to purchase before the capacity decision and uses the acquired advance sales information to decide on the capacity in particular we study a profit maximization model in which a manufacturer collects advance sales information periodically prior to the regular sales season for a capacity decision customer demand is stochastic and price sensitive once the capacity is set the manufacturer produces and satisfies customer demand to the extent possible from the installed capacity during the regular sales period we study scenarios in which the advance sales and regular sales season prices are set exogenously and optimally for both scenarios we establish the optimality of a control band or a threshold policy that determines when to stop acquiring advance sales information and how much capacity to build we show that advance selling can improve the manufacturer s profit significantly we generate insights into how operating conditions such as the capacity building cost and market characteristics such as demand variability affect the value of information acquired through advance selling from this analysis we identify the conditions under which advance selling for capacity planning is most valuable finally we study the joint benefits of acquiring information for capacity planning through advance selling and revenue management of installed capacity through dynamic pricing

an economic production and remanufacturing model with learning effects abstract managing inventory in reverse logistics has been receiving much attention in recent years one inventory problem that has been of interest to researchers is the production and remanufacturing model where used items are collected and remanufactured to satisfy customer demand the available models in the literature do not discuss the learning effects in production and remanufacturing processes this may not be true in industries where labour costs and learning costs are expensive by modelling these learning effects management may use established learning models to better utilize capacity manage inventories and coordinate production and distribution throughout the chain this paper extends the production remanufacture and waste disposal model by assuming learning to occur in both production and remanufacturing processes however this paper also assumes that improvements due to learning require capital investment mathematical models are developed numerical examples are provided and results are discussed

production planning for a deteriorating item with stochastic demand and consumer choice abstract this paper concerns inventory control of a deteriorating product with non negligible procurement lead time that perishes after a known number of periods demand for fresh products during each period is represented as a random variable with known probability distribution but only a fraction of this demand is satisfied during any given period due to item deterioration we derive the expected profit function for a two period problem with one production opportunity before the selling season begins and a single product type with two period shelf life for the case in which demand during both periods is uniform independent and identically distributed we identify sufficient conditions for the existence of an optimal solution and present a straightforward procedure for obtaining the solution

optimal replenishment policies for non instantaneous deteriorating items with stock dependent demand abstract wu et al 2006 an optimal replenishment policy for non instantaneous deteriorating items with stock dependent demand and partial backlogging international journal of production economics 101 369 384 established an inventory model for non instantaneous deteriorating items with stock dependent demand and obtained the optimal replenishment policy in this paper we first amend wu et al s model by changing the objective to maximizing the total profit secondly we set a maximum inventory level in the model to reflect the facts that most retail outlets have limited shelf space thirdly we relax the restriction of zero ending inventory when shortages are not desirable we then establish the theoretical results and provide an algorithm to find the optimal solution finally we present some numerical examples to illustrate the results

resource allocation under demand uncertainty and private information we study the effect of multilateral private information on the efficiency of markets where capacity constrained upstream agents supply a resource to downstream entities facing uncertain end demands we analyze two models a pooling system in which a single downstream principal pools a resource from multiple upstream agents and a distribution system in which one upstream principal allocates a resource across multiple downstream agents we show that the presence of multilateral private information does not hinder efficiency in the pooling system in contrast in the distribution system the quantities allocated to downstream agents can exceed as well as fall short of their first best levels these results shed light on the recently improved performance of u s agricultural produce market and the observed episodes of shortages oversupplies in flu vaccine and other seasonal markets this paper was accepted by manel baucells decision analysis