Management Science and Information Systems' Seminar（2016-05）

Topic:Payment Terms and Wholesale Prices in Multiechelon Supply Chains: Cost Assessment, Incentives, and Coordination

Speaker:Jeannette Song,Fuqua School of Business, Duke University

Time:Tuesday, June 21, 10:00-11:30

Abstract:

Advanced information technologies – such as eProcurment systems, automatic electronic payments, e-commerce platforms, RFID, and mobile devices – have greatly increased the variety and flexibility of payment terms between supply chain stages, and this trend is increasing. The cost assumptions made by standard supply-chain inventory models, however, do not have the flexibility to account for these rapid changes. In this paper we take one step towards closing this gap by focusing on common payment terms used with wholesale prices. We introduce a notation system to explicitly connect physical and financial flows so that the payment streams can be expressed as a function of standard physical inventory metrics. We then derive a new cost formulation that captures the financial inventory cost implications of such payment streams. These tools increase the usability and adaptability of existing multiechelon inventory models, even without considering the technology-driven payment term changes.

As an illustration, in the second part of the paper, we apply these methods to derive new insights in a two-echelon base stock model. First, we show under wholesale price contract standard payment terms, the cost of decentralization is not only due to too little inventory at the retailer, but also due to too much inventory at the supplier. Second, we show partial consignment (interestingly, not full consignment) can coordinate the supply chain. Third, we decompose the loss from decentralization into the loss due to not following the centralized inventory policy and an additional loss due to one member having a larger capital cost rate even under the centralized policy. We identify when this additional loss is high, thereby characterizing when extending lower capital cost rates to supply chain partners is most beneficial. (Joint work with Jordan Tong and Gregory DeCroix.)

Introduction:

Jing-Sheng Song, PhD,Professor of Operations Management; BA (Beijing Normal University),MSc (Chinese Academy of Sciences), PhD (Columbia University) .

Professor Song’s expertise is in operations and supply chain management. She studies topics like supply chain coordination mechanisms, global sourcing strategies, supplier quality and risk management, socially responsible and sustainable supply chain development, inventory and logistics system design and planning, e-commerce channel design, assemble-to-order systems, product variety and order fulfillment. She has published numerous articles in leading international academic journals such asManagement Science,Manufacturing & Service Operations Management(M&SOM), andOperations Research. She also co-edited the book,Supply Chain Structures: Coordination, Information and Optimization. She is the recipient of several research grants from the U.S. National Science Foundation and the Natural Science Foundation of China. In 2003, she was awarded Distinguished Overseas Young Scholar by the Natural Science Foundation of China. In 2009, she was named the Chang Jiang Scholar by the Ministry of Education in China. Professor Song has served on the editorial boards of several leading academic journals, including Area Editor forOperations Researchin the Manufacturing, Service and Supply Chain Operations area and Department Editor forIIE Transactions, as well as Associate Editor forManagement Science, M&SOM,andNaval Research Logistics.She is also a past President of the Manufacturing and Service Operations Management Society of INFORMS. Professor Song teaches Operations Management, Supply Chain Management, Global Operations, and Global Academic Travel Experience (China) in both the Daytime and Executive MBA programs.

//www.fuqua.duke.edu/faculty_research/faculty_directory/song/

Your participation is warmly welcomed!