Lead-time quotation and hedging coordination in make-to-order supply chain

Yue Zhai and T.C.E. Cheng

European Journal of Operational Research, 2022, vol. 300, issue 2, 449-460

Abstract: In the Make-To-Order (MTO) supply chain, for enticing the retailer to choose a shorter delivery lead-time, which improves the manufacturer's wholesale prices, the manufacturer adopts the Production Time Hedging (PTH) strategy as an incentive. Since the profit of the retailer depends not only on the Quoted Delivery Lead-Time (QDLT) but also on the Realized Delivery Lead-Time (RDLT), effectively hedging production time uncertainty reduces tardy delivery. We build an analytical model to investigate how PTH affects the retailer's QDLT decision and the supply chain performance. We consider models for four scenarios, namely (I) the centralized model, (II) the Nash model, (III) the manufacturer-led Stackelberg model, and (IV) the retailer-led Stackelberg model. We derive close-form results on the optimal hedging and QDLT decisions. In models II and III, PTH reduces the QDLT under all the conditions. However, in model IV, PTH can only coordinate the retailer when the hedging cost is low, or the holding cost/tardiness penalty is high. Besides, we find that model III is the dominant scenario for both players. Extending model IV to consider the case where the retailer sources from multiple manufacturers, we show that multiple sourcing is the dominant strategy when a manufacturer's hedging cost is high, or its holding cost/lead-time sensitivity factor is small. From the numerical study, we are interesting to find that the retailer's profit increases with the manufacturer's holding cost/lead-time sensitivity factor.

Keywords: Supply chain management; Game theory; Lead-time quotation; Hedging; Make-to-order (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S037722172100655X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:300:y:2022:i:2:p:449-460

DOI: 10.1016/j.ejor.2021.07.045

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().