Stochastic production capacity: A bane or a boon for quick response supply chains?
Journal
Naval Research Logistics
Journal Volume
67
Journal Issue
2
Pages
126-146
Date Issued
2020
Author(s)
Abstract
The quick response (QR) system that can cope with demand volatility by shortening lead time has been well studied in the literature. Much of the existing literature assumes implicitly or explicitly that the manufacturers under QR can always meet the demand because the production capacity is always sufficient. However, when the order comes with a short lead time under QR, availability of the manufacturer's production capacity is not guaranteed. This motivates us to explore QR in supply chains with stochastic production capacity. Specifically, we study QR in a two-echelon supply chain with Bayesian demand information updating. We consider the situation where the manufacturer's production capacity under QR is uncertain. We first explore how stochastic production capacity affects supply chain decisions and QR implementation. We then incorporate the manufacturer's ability to expand capacity into the model. We explore how the manufacturer determines the optimal capacity expansion decision, and the value of such an ability to the supply chain and its agents. Finally, we extend the model to the two-stage two-ordering case and derive the optimal ordering policy by dynamic programming. We compare the single-ordering and two-ordering cases to generate additional managerial insights about how ordering flexibility affects QR when production capacity is stochastic. We also explore the transparent supply chain and find that our main results still hold. ? 2020 Wiley Periodicals, Inc.
Subjects
Bayesian information updating; flexible capacity; quick response supply chain; random demand and capacity
Other Subjects
Dynamic programming; Stochastic systems; Supply chains; Bayesian information; Flexible capacity; Optimal capacity expansion; Optimal ordering policy; Quick response; Random demand; Stochastic production; Two-echelon supply chain; Manufacture
Publisher
John Wiley and Sons Inc.
Type
journal article