Mitigating supply chain risk: Pooling, contracting, and supply channel selection

Uncertainty in future demand and/or supply poses risk to the profits of supply chain partners. We study mitigation of this supply chain risk from three perspectives.; For a multi-product production and distribution system under periodic review, we study the impact of advance demand information on actions and interactions of supply chain members. For a multi-product manufacturer facing correlated advance demand information, we provide closed-form expressions for optimal produce-up-to levels and resulting costs. We discuss managerial implications of changes in system parameters. When the manufacturer sells to several retailers, we show how benefits of advance demand information may be shared and devise a contract mechanism for optimal market segmentation when retailers differ in their service to end customers.; Supply chain partners negotiate contracts to align incentives for decision making and to shift how partners share the benefits of interaction and the risks from uncertain supply or demand. A promised leadtime contract reduces supplier risk from future demand uncertainty and buyer risk from uncertain inventory availability. The supplier agrees to ship buyer orders in full after a promised order leadtime, and the buyer pays for this privilege. Using knowledge of supply chain expected inventory cost, the supplier proposes a contract to the buyer. When the buyer has private information regarding his optimal stocking level, the supplier offers more supply chain surplus to the buyer to screen this information. When the buyer reduces processing leadtime, the supplier may offer renegotiation incentives encouraging the buyer to truthfully report this change and to agree to revision of a multi-period contract.; The choice of a new product's supply channel limits that product's profitability. We investigate the supply channel decision of an OEM wishing to outsource production of a make-to-order product to one of several pre-qualified contract manufacturers. In addition, each contract manufacturer may select his own component supplier. In this supply channel selection problem, each firm maximizes expected profit. We show that competition gives firms an incentive to misreport available production capacity. We devise simple RFQ design strategies that reveal true production capacities, enabling the OEM to select the supply channel that maximizes her expected profit.