Reactive production with preprocessing restriction in supply chains with forecast updates
Meimei Zheng,
Masha Shunko,
Nagesh Gavirneni,
Yan Shu and
Kan Wu
IISE Transactions, 2019, vol. 51, issue 12, 1402-1436
Abstract:
We study a two-mode production system that allows the supply chain to utilize a second (reactive) production opportunity after demand information is updated before the selling season. Such reactive production quantity, however, is limited by the required preprocessing of raw materials that must be decided before the demand information is updated. We analyze the problem for two cases: perfect and imperfect demand information updates. For the case of imperfect demand updates, whether to engage in preprocessing that provides an opportunity for future reactive production depends on the relative magnitude of the resolved demand uncertainty compared with the unresolved one. In the case of perfect demand updates, however, it is independent of the demand characteristics. To the best of our knowledge, this is the first study to provide guidance on when and how much to invest in preprocessing in a situation with a general demand forecast updating. We also present a coordinating Pareto-improving reservation contract and show how the manufacturer can extract more profit by setting a lower reservation fee. Counterintuitively, we find that the manufacturer in the case of perfect demand updates benefits more from a contract without a return policy than that with a return policy. Numerical examples demonstrate that when the preprocessing restriction exists, the benefit of the two-mode production can be as large as 104% as compared to the single-mode production.
Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (2)
Downloads: (external link)
http://hdl.handle.net/10.1080/24725854.2019.1600080 (text/html)
Access to full text is restricted to subscribers.
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:taf:uiiexx:v:51:y:2019:i:12:p:1402-1436
Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/uiie20
DOI: 10.1080/24725854.2019.1600080
Access Statistics for this article
IISE Transactions is currently edited by Jianjun Shi
More articles in IISE Transactions from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().