Reactive Production with Preprocessing Restriction in Supply Chains with Forecast Updates

41 Pages Posted: 21 Jul 2015

See all articles by Meimei Zheng

Meimei Zheng

Nanyang Technological University (NTU)

Kan Wu

Nanyang Technological University (NTU)

Srinagesh Gavirneni

Cornell University - Samuel Curtis Johnson Graduate School of Management

Yan Shu

Google Inc.

Date Written: July 20, 2015

Abstract

This study considers a two-mode production system that allows the supply chain to utilize a fast reactive production with improved demand information before the selling season. However, the reactive production quantity is limited by the required preprocessing decision before the demand information is updated. The condition under which adding a reactive production is beneficial to the supply chain depends on the demand forecast updating process, besides the cost parameters. To illustrate the benefit of this system, the two-mode production system is compared with two single-mode production systems, one that is purely speculative and the other purely reactive. In addition, a pricing contract with a return policy is demonstrated to efficiently coordinate the supply chain since the contract allows the maximization and arbitrary allocation of the total supply chain profit. Contrary to the results in existing literature, this result continues to hold whether demand information is known to the manufacturer or not. Numerical examples demonstrate that the benefit of the two-mode production can be as large as 104% when the preprocessing limit exists.

Keywords: Demand Forecast Updating, Capacitated Supply Chain, Newsvendor, Contract, Coordination

Suggested Citation

Zheng, Meimei and Wu, Kan and Gavirneni, Srinagesh and Shu, Yan, Reactive Production with Preprocessing Restriction in Supply Chains with Forecast Updates (July 20, 2015). Available at SSRN: https://ssrn.com/abstract=2632786 or http://dx.doi.org/10.2139/ssrn.2632786

Meimei Zheng (Contact Author)

Nanyang Technological University (NTU) ( email )

S3 B2-A28 Nanyang Avenue
Singapore, 639798
Singapore

Kan Wu

Nanyang Technological University (NTU) ( email )

S3 B2-A28 Nanyang Avenue
Singapore, 639798
Singapore

Srinagesh Gavirneni

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

Yan Shu

Google Inc.

1600 Amphitheatre Parkway
Second Floor
Mountain View, CA 94043
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
46
Abstract Views
497
PlumX Metrics