Robust supply chain coordination modeling: A revenue management perspective

Abstract

The revenue management concept and techniques are applied to model the coordination of supply chain elements. The fundamental premise of this approach is synchronization of a group of business entities consist-ing of a manufacturer and multiple suppliers to achieve an optimal supply chain capacity plans. The output of the supply chain can be various products and thus it is measured in terms of capacity. In our paper, the de-mand is stochastic. As a result, the chain faces uncertainty when it comes to determine the volume of contract between manufacturer and suppliers. The model developed in this paper provides the basis for long-term con-tracts between manufacturer and its supply network for coordinated and non-coordinated supply relationship. It also provides decision rules to increase flexibility in responding to consumer demand shifts without cost overlays in resource utilization, while increasing the overall capacity utilization and market share. The col-laboration framework versus independency of supply chain members is introduced to investigate the rules for competition through optimal demand management and capacity allocation. An important result is that the models are robust, as they are independent of demand distribution function. We also study the effect of a sup-plier who supplies two competitive chains on capacity and price basis. Our analysis of supply-chain shows that at the presence of uncertainty of demand collaborative chains are more robust to capacity reservation plan comparing to independent identities as far as capacity is concerned. The robustness of a supply network to support the chain leader (manufacturer) is also measured and the trade off for sustainable network is proposed.