Researches on Inventory and Financing Policies of Supply Chain Considering Operating-Caused Supply and Demand Mismatches


Student thesis: Doctoral Thesis

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Awarding Institution
Award date8 Jul 2019


From a perspective of the supply chain, lots of characteristics of products, derived from the whole stages including production, inventory and retail, may affect the matches between the manufacturer’s production capacity and the retailer’s order requirement, which further impact the feasibility of production-inventory solutions. Meanwhile, in the physical channel, when involving short-term financing policies represented by trade credit, the retailer’s stimulated order quantity may further create more difficulties for the manufacturer to fulfill the production plan on time, and increase the possibility of short supply. Against the background, this dissertation focuses on the mismatches between the manufacturer’s output and the retailer’s order quantity caused by products’ characteristics derived from all aspects of the supply chain, which can be defined as Operating-Caused Supply-Demand Mismatches (OC-SDMs). On this basis, a series of policies including production, distribution, inventory and financing should be developed effectively via incorporating products’ characteristics, aiming to avoiding the occurrences of short supply and minimizing loss cost caused by oversupply. To conclude, from the perspective of the manufacturer, this dissertation is conducted against the background of OC-SDMs (i.e., operational decisions may result in short supply, and further trigger oversupply), which attempts to systematically address the inventory and financing policies of the supply chain, and achieves effective matches between the manufacturer’s output and the retailer’s order quantity. The innovative points of this dissertation are as follows.

(1) Joint production-inventory policy for defective items under trade credit and effective capacity utilization. Quality defects in the production process may reduce the manufacturer’s production capacity, which in turn leads to the mismatches between the manufacturer’s production amount with perfect quality and the retailer’s order quantity. And the retailer’s increased order incentive under trade credit may further amplify short supply. In order to ensure that the retailer’s order quantity for perfect items can be delivered in a timely manner, this dissertation builds a joint production-inventory decision model for defective items, where the manufacturer inspects and rework defective items. Based on the rework policy, the effective capacity utilization is firstly defined to judge the feasibility of the production-rework solution for defective items. Therefore, two new joint production-rework-inventory solutions are proposed, which are proved to own a larger feasible domain space than the existing models. On this basis, the derived theoretical results and numerical examples are applied to depict the effectiveness of the new policy. The new derived policies expands the strategic space of existing literature researches, and gives more realistic choices to decision makers when seeking to increase capacity utilization.

(2) Impacts of two-stage deterioration on an integrated inventory model under trade credit and variable capacity utilization. During the inventory stages including in-transit and retail, the deteriorated quantity would increase along with a longer inventory time, which makes the manufacturer more difficult to complete the retailer’s order requirement. And under trade credit, two-stage deterioration can lead to the difference of quantitative baseline between the manufacturer and the retailer when calculating opportunity cost of capital. Hence, in order to ensure the feasibility of the production-inventory for deteriorating items, a joint economic lot-size model under trade credit are developed to match the manufacturer’s production capacity and the retailer’s order requirement in a timely manner. Via firstly defining variable capacity utilization for deteriorating items, and the feasible production-inventory solutions for two-stage deterioration can be obtained. With the derived theoretical results, two new definitions (i.e., the retailer’s maximum allowable order cycle and the pressure of in-transit deterioration) are further given to ensure the feasibility of production-inventory plan for deteriorating items. Combined with the proposed algorithms and numerical examples, both the effectiveness of the model, and impacts of different trade credit schemes on supply chain performance are verified. The model provides a new quantitative decision-making basis for constructing feasible production-inventory policies for supply chain with in-transit deterioration.

(3) Effects of trade credit limit on the performance of the manufacturer-dominated channel under inventory-level-dependent demand. During the retail stage, the retailer is inclined to order more quantities for the item with inventory-level-dependent demand (ILDD) for stimulating market demand. However, given the manufacturer’s fixed production rate, the increased market demand may lead to short supply. Additionally, during the fixed credit period, the retailer’s higher order quantities implies the increases of both the account receivable and opportunity cost of capital of the manufacturer. Therefore, this dissertation firstly proposes trade credit limit based on the deterministic inventory model for the items with ILDD, and builds a manufacturer-led Stackelberg game model for determining the retailer optimal order quantity and the manufacturer’s optimal credit period. By setting the retailer’s maximum allowable order quantity, the manufacturer could adjust the production policy for avoiding short supply. Moreover, trade credit limit policy is verified to be effective for controlling the retailer’s accounts payable, and restraining the order quantity not exceeding the upper limit. Through mathematical proofs, the related theorems are given to derive the optimal trade credit and inventory solutions. This research expands the strategic space of deterministic inventory models under trade credit, and provides a new perspective for decision makers to solve short supply when a direct correlation exists between operational and marketing policies.

(4) Analyses of operational policies in response to short-term financing under random yield and stochastic demand. Random yield stemming from the production stage may lead to a mismatch between the manufacturer’s output and the retailer’s order quantity, which in turn affects operational performance of the upstreams and the downstreams. And stochastic demand in the retail stage may further intensify OC-SDMs to some degree. Thus, this dissertation formulates manufacturer-Stackelberg games for proposing two different costing schemes to deal with OC-SDMs, including received-quantity-based (RQB) and order-quantity-based (OQB). Under the circumstance, this dissertation also incorporates both trade credit and bank credit to develop the retailer’s order policy and the manufacturer’s pricing policy. Optimal solutions under different costing schemes are obtained via mathematical proofs, and the derived results are further verified when random yield is considered separately. Combining theoretical results with numerical examples, the following managerial insights can be found: i) under received-quantity-based, random yield directly affects the optimal decision of the manufacturer and the retailer, which may lead to positive relationship between the manufacturer’s wholesale prices and the retailer’s order quantity. ii) Under order-quantity-based, when the manufacturer guarantees the retailer’s order quantity through emergency production, the supply risk caused by random yield only directly affects the manufacturer’s decision. For the first time, the model considers the impact of trade credit under random yield, and further introduces the newsvendor model under bank credit, providing theoretical support for decision makers when applying multiple inventory and financing solutions.

Based on the product characteristics of supply chain, this dissertation systematically discusses OC-SDMs occurring at production, inventory and retail stages. And based on joint decision models and Stackelberg models, this dissertation considers the optimal operational and financing policies of supply chain. Therefore, research results of this dissertation not only enrich the existing theoretical research framework of OC-SDMs, but also provides decision basis and more strategic choices for supply chain decision makers.

    Research areas

  • Operating-caused supply-demand mismatches, Joint economic lot-size problem, Stackelberg model, Trade credit