Technical Note—Demand Uncertainty Reduction in Decentralized Supply Chains

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

This note analyzes the effects associated with reducing demand uncertainty in a decentralized supply chain comprising one manufacturer, one retailer, and a wholesale price contract that governs the transactions between them. The demand uncertainty level is parameterized through a mean-preserving spread, and the manufacturer's and the retailer's equilibrium decisions are solved accordingly. We consider the case of an exogenous retail price as well as the case of an endogenous retail price, and we find in both cases that the manufacturer's and the retailer's expected profits in equilibrium are not necessarily monotone decreasing in the uncertainty level. Thus, we find that, even if the cost of reducing demand uncertainty is zero, uncertainty reduction can hurt rather than benefit either or both members of the supply chain.

Original languageEnglish (US)
Pages (from-to)156-161
Number of pages6
JournalProduction and Operations Management
Volume26
Issue number1
DOIs
StatePublished - Jan 1 2017

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Supply chains
Profitability
Uncertainty
Demand uncertainty
Decentralized supply chain
Retailers
Retail prices
Costs
Supply chain
Mean preserving spread
Profit
Wholesale prices

All Science Journal Classification (ASJC) codes

  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering
  • Management of Technology and Innovation

Cite this

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Technical Note—Demand Uncertainty Reduction in Decentralized Supply Chains. / Li, Meng; Petruzzi, Nicholas C.

In: Production and Operations Management, Vol. 26, No. 1, 01.01.2017, p. 156-161.

Research output: Contribution to journalArticle

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