Supply chain networks with global outsourcing and quick-response production under demand and cost uncertainty
- 1.2k Downloads
This paper develops a modeling and computational framework for supply chain networks with global outsourcing and quick-response production under demand and cost uncertainty. Our model considers multiple off-shore suppliers, multiple manufacturers, and multiple demand markets. Using variational inequality theory, we formulate the governing equilibrium conditions of the competing decision-makers (the manufacturers) who are faced with two-stage stochastic programming problems but who also have to cooperate with the other decision-makers (the off-shore suppliers). Our theoretical and analytical results shed light on the value of outsourcing from novel real option perspectives. Moreover, our simulation studies reveal important managerial insights regarding how demand and cost uncertainty affects the profits, the risks, as well as the global outsourcing and quick-production decisions of supply chain firms under competition.
Unable to display preview. Download preview PDF.
- Bazaraa, M. S., Sherali, H. D., & Shetty, C. M. (1993). Nonlinear programming: theory and algorithms. New York: Wiley. Google Scholar
- Birge, J., & Louveaux, F. (1997). Introduction to stochastic programming. New York: Springer. Google Scholar
- CNN Tech (2004). Zara: a model fashion retailer. http://edition.cnn.com/2004/TECH/07/19/spain.zara/index.html. Accessed 20 April 2011.
- Cohen, S., Geissbauer, R., Bhandari, A., & D’heur, M. (2008). Sixth annual survey by PRTM management consultants: global supply chain trends 2008–2010. Google Scholar
- Coyle, J. J., Langley, C. J., Gibson, B., Novack, R. A., & Bardi, E. (2008). Supply chain management: a logistics perspective (8th edn.). South-Western Cengage Learning: Mason. Google Scholar
- Datta, S. (2005). Strategic outsourcing: a real option approach. Paper presented at the Doctoral Symposium of Bristol Business School, Bristol Business School, Bristol, January. Google Scholar
- Derman, C., Olkin, I., & Gleser, L. J. (1973). A guide to probability theory and application. Holt, Rinehart and Winston. Google Scholar
- Gabay, D., & Moulin, H. (1980). On the uniqueness and stability of Nash equilibria in noncooperative games. In A. Bensoussan, P. Kleindorfer, & C. S. Tapiero (Eds.), Applied stochastic control in econometrics and management science (pp. 271–294). Amsterdam: North-Holland. Google Scholar
- Johnson, M. E. (2006). Dual sourcing strategies: operational hedging and outsourcing to reduce risk in low-cost countries. In C.-E. Lee & H. S. Lee (Eds.), Supply chain excellence in emerging economies. Berlin: Springer. Google Scholar
- Kouvelis, P., & Milner, J. (2002). Supply chain capacity and outsourcing decisions: the dynamic interplay of demand and supply uncertainty. IIE Transactions, 34, 717–728. Google Scholar
- Nagurney, A. (1999). Network economics: a variational inequality approach. Dordrecht: Kluwer Academic Publishers. Google Scholar
- Nagurney, A. (2006). Supply chain network economics: dynamics of prices, flows, and profits. Cheltenham: Elgar Publishing. Google Scholar
- Nagurney, A., & Yu, M. (2011a). Sustainable fashion supply chain management under oligopolistic competition and brand differentiation. International Journal of Production Economics, in press. Google Scholar
- Nash, J. F. (1950). Equilibrium points in n-person games. In Proceedings of the National Academy of Sciences (vol. 36, pp. 48–49). Google Scholar
- Ross, S., Westerfield, R., & Jordan, B. (2009). Fundamentals of corporate finance (9th edn.). McGraw-Hill: Irwin. Google Scholar
- Shapiro, A., Dentcheva, D., & Ruszczynski, A. (2009). Lectures on stochastic programming: modeling and theory. Society for industrial and applied mathematics. Philadelphia. http://www.isye.gatech.edu/people/faculty/Alex_Shapiro/SPbook.pdf. Accessed 20 April 2011.
- Suri, R. (1998). Quick response manufacturing: a company wide approach to reducing lead times. Portland: Productivity Press. Google Scholar
- The Economist Intelligence Unit (2009). Managing supply-chain risk for reward. Google Scholar