Buy-back (return) contract. Buy-back (return) contract

Transcription

1 c: unit cost Buy-back (return) contract Supplier Buyer/Retailer q: order qty w: wholesale price b: buyback price Retailer Beneficiary/ Consumer p: reward/benefit/price Random demand with probability distribution F(x) return any unsold units at the end of the selling season to the supplier receive b<w Buyback contract allocates the risk of excess inventory between the supplier and the retailer 27 Buy-back (return) contract c=25, p=50, Demand~Uniform[0,100] Suppose supplier sells at w and offers b for any returned units. What is the buyer s best response (q)? Anticipating the buyer s best response, what is the supplier s choice of w and b? 28 1

2 Buy-back (return) contract To coordinate the supply chain, supplier must set w = p(1- )+ c b = p(1- ) Buyback contract allows for flexible division of profits between the supplier and the retailer Can choose contract parameters for win-win!! 29 Buy-back (return) contract c=25, p=50, Demand~Uniform[0,100], w=37.5, b= Centralized supply For chain s this combination of w and b: (expected) profit q (40 50) SC profit ( ) Supplier s Supplier s profit ( ) (expected) Buyer s profit profit ( ) Decentralized SC behaves same as the centralized SC! Buyer s (expected) profit 30 2

3 Win-win? c=25, p=50, Demand~Uniform[0,100], w=37.5, b=25 With the above (w,b), supplier is better off, buyer is worse off compared to the wholesale price contract. Can we adjust (w,b) so that both are better of under buy-back compared to the wholesale price contract? 31 Buy-back (return) contract c=25, p=50, Demand~Uniform[0,100], w=33.5, b=17 Centralized supply chain s For this combination of w and b: (expected) profit q (40 50) SC profit ( ) Buyer s Supplier s profit ( ) (expected) Buyer s profit profit ( ) Decentralized SC behaves same as the centralized SC Supplier s Win-win for the players! (expected) profit 32 3

4 c: unit cost Options/reservation contract Supplier R: reservation qty q: order qty Buyer r: reservation price w: wholesale price Q: production capacity/quantity Supplier announces reservation price Buyer decides on reservation quantity Supplier chooses production capacity/quantity Demand is realized Buyer decides on order/purchase quantity Beneficiary/ Consumer p: reward/benefit/price Random demand with probability distribution F(x) 33 Options contract: Malawi example Densely populated rural population, repeated food crises : estimated 400,000 tons of food shortage Government secured supplies via an options contract from South Africa Population between (in thousands) Source: Source: Source:

5 Options contract: Malawi example Malawi government $$ - upfront payment Technical support The right to purchase up to 60,000 tons of maize at $18m Transportation cost included in the agreement 35 Options contract: Malawi example Exercised first 30,000 tons in October, and the remaining 30,000 tons in November By December/January, prices were $50-$90 above the ceiling contract price 36 5

6 Options contract: Malawi example Most of the maize used for humanitarian aid Had the best delivery performance of all maize imported to Malawi Benefits? Drawbacks? Manage risk, plan ahead Provides clear signal of government intent Opportunity for commercial participation Requires up-front investment Similar contracts for disaster preparedness? 37 Multiple facets of collaboration Vertical Horizontal Manufacturing & Sales/Marketing Manufacturing & Distribution Design & Marketing & Manufacturing Procurement functions across multiple divisions Supplier & Manufacturer Manufacturer & Retailer Distributor & Retailer Multiple manufacturers (e.g., Covisint) Multiple logistics providers (e.g., Transplace) Intra-enterprise Inter-enterprise 38 6

7 Intra-enterprise horizontal collaboration - Example: Procurement Multiple divisions with similar functionality within a firm/organization collaborate for improved efficiencies Using centralized procurement, Dial Corp. was able to eliminate $100 million in total costs in five years ( ) Siemens Medical Systems cut its costs by 25% over a three year period ( ) 39 Inter-enterprise horizontal collaboration - Example: Procurement Multiple firms/organizations (which may be potential competitors) collaborate on specific functions for improved efficiencies Group Purchasing Organizations (GPO) Directory: more than 700 GPOs and multi-hospital systems which own, manage, or provide purchasing services to hospitals PAHO Revolving Fund for Vaccine Procurement purchase of vaccines, syringes/needles, and cold chain equipment establishes annual vaccine contracts on behalf or member states 40 7

8 PAHO procurement process PAHO Requests Forecasts from Member Countries (June) PAHO Aggregates Forecasts and Makes Adjustments (July) PAHO Receives Bids and Makes Allocations (September) PAHO Submits Bid Request to Suppliers (August) PAHO Places Quarterly Orders (Nov, Feb, May, Aug) and Sends Rolling Forecasts to Suppliers 41 PAHO procurement benefits Lower prices due to consolidated/bulk purchasing Prevent interruptions due to lack of vaccines or immediate funds Assure quality (PAHO/WHO standards) of vaccines being used in national immunization programs Establish procedures with suppliers for urgent orders to be placed and delivered on short notice Stimulate the introduction of new vaccines in routine immunization programs (MMR, Hib and Hepatitis B) Ongoing dialogue with vaccine manufacturers longterm production plans and decisions on capital investments 42 8

9 Summary Supply chain management involves conflicting objectives and is all about trade-offs Collaboration and coordination among supply chain partners, and among the functional divisions of an organization are one of the main drivers of success 43 9