An economic-statistical design of double sampling control chart

The double sampling (DS) chart can reduce the sample size when monitoring the process mean. In this study, Duncan's cost model was modified by adding the statistical constraints to develop the design model of DS chart for the optimization of design parameters—sample size, control limit coefficient, warning limit coefficient and sampling interval. A numerical example was provided to illustrate the use of this model. A sensitivity analysis of the effects of model parameters and statistical constraints on the optimal design of DS chart was also performed.     

Capacity decisions and supply price games under flexibility of backward integration

A key issue in supply chain design for manufacturing firms is how to make a trade-off between strategies of vertical integration and outsourcing. A two-echelon supply chain model with one supplier and one manufacturer is set up to study this issue. The manufacturer makes decisions on two types of capacities, one is core capacity that cannot be outsourced, the other is non-core capacity on which the manufacturer implements a strategy that includes three options—complete, partial or no outsourcing. Such a strategy is referred to as “flexibility of backward integration”. Optimal capacity decisions of the manufacturer are given and the supplier's pricing strategies are discussed. Managerial implications of partial outsourcing are investigated. The impact of the flexibility of backward integration is presented and finally, supply chain coordination is analyzed.     

Logistics and supply chain management in luxury fashion retail: Empirical investigation of Italian firms

The Italian industry of fashion goods is a business worth 67.6€ billion in 2006 (Il Sole 24ore, January 10, 2007), of which about 26€ billion is due to the luxury segment. Marketing gurus state that “consumers everywhere at every income level want more luxury” [Danziger, P.N., 2005. Let them Eat the Cake: Marketing Luxury to the Masses as well as the Classes. Dearborn Trade Publishing, Chicago]: therefore, companies should move brands towards a higher positioning and add more valuable features to products and services, but this cannot be obtained only by means of marketing efforts. Which is the role of operations and supply chain management in luxury fashion companies’ success? This paper presents the results of the exploratory stage of a research project ongoing at Politecnico di Milano and dealing with supply chain management in the luxury fashion industry. In total, 12 Italian luxury fashion retailers have been studied in order to describe the main features of operations and supply chain strategies in the luxury fashion segment and to identify their role with respect to the relevant critical success factors.     

How accurate is the integrated vendor–buyer continuous model?

The classic single-item, deterministic-demand, integrated vendor–buyer model is revisited. The decision problem may also be viewed as that of one centralized firm, dealing with a two-level EOQ-like supply chain with finite production rates. It is sought to optimize the production lot-size and the integral number of its shipments, in equal batches, from the vendor to the buyer. While the problem calls for discrete optimization techniques, we introduced a continuous model where one can take derivatives with respect to both variables. In this short paper, we establish a 98.5% lower bound on the accuracy of this continuous model.     

Customer and retailer rebates under risk aversion

In a supply chain setting, we analyze a manufacturer's customer and retailer rebates, which are sales incentives offered to the end buyers and retailers, respectively. The performance of both rebates is influenced by the retailer's objective and response to the promotion due to his intermediary position in the channel. Earlier studies investigating rebates in distribution channels have traditionally assumed that the retailer is risk neutral with the objective of maximizing expected profits. In our paper, we consider a risk-averse retailer. We formally model risk aversion by adopting the Conditional-Value-at-Risk (CVaR) decision criterion. Using a stochastic and (effective) price dependent demand, we analyze the manufacturer's rebate amount decisions and the retailer's joint inventory and pricing decisions in a game theoretical framework. We provide several structural properties of the objective functions and show monotonicity of the retailer's decisions in the degree of risk aversion. For the case of retailer rebates, we characterize the unique equilibrium, and for the case of customer rebates, we prove the existence of an equilibrium. Using numerical examples, we provide further insights on the impact of risk aversion. For example, given an exogenous wholesale price, we observe a threshold value on the retailer's risk-aversion parameter below (above) which the manufacturer is better off with retailer rebates (customer rebates); implying that the manufacturer's preferred rebate type can be different depending on whether the retailer is risk neutral or sufficiently risk averse.     

Strategic supply chain management: Improving performance through a culture of competitiveness and knowledge development

For many firms, using their supply chains as competitive weapons has become a central element of the strategic management process in recent years. Drawing on the resource‐based view and theory from the organizational learning and information‐processing literatures, this study uses a sample of 201 firms to examine the influence of a culture of competitiveness and knowledge development on supply chain performance in varied market turbulence conditions. We found that synergies exist between a culture of competitiveness and knowledge development: their interaction has a positive association with performance. In addition, based on behavioral and contingency theories, we found that market turbulence moderates these relationships, having a positive influence on the knowledge development–performance link and a negative influence on the culture of competitiveness–performance link. Managers who are confident about the level of market turbulence they will face can use this sense to decide whether to emphasize developing either a culture of competitiveness or knowledge development in their supply chains. For those firms whose managers are unlikely to be able to predict the degree of turbulence they will face over time, a focus on both a culture of competitiveness and knowledge development is critical to ensuring success. Copyright © 2007 John Wiley & Sons, Ltd.     

Variance amplification and the golden ratio in production and inventory control

A discrete linear control theory model of a generic model of a replenishment rule is presented. The replenishment rule, which we term a “Deziel Eilon—automatic pipeline, inventory and order-based production control system”, is guaranteed to be stable. From a z-transform model of the policy, an analytical expression for bullwhip is derived that is directly equivalent to the common statistical measure often used in simulation, statistical and empirical studies to quantify the bullwhip effect. This analytical expression clearly shows that we can reduce bullwhip by taking a fraction of the error between the target and actual inventory and pipeline (or work in progress (WIP) or “orders placed but not yet received”) positions. This is in contrast to the common situation where ordering policies account for all of the error every time an order is placed. Furthermore, increasing the average age of the forecast reduces bullwhip, as does reducing the production/distribution lead-time. We then derive an analytical expression for inventory variance using the same procedure to identify the closed form bullwhip expression.We assume that a suitable objective function is linearly related to the bullwhip and inventory variance amplification ratios and then optimise the PIC system for different weightings of order rate and inventory level variance. We highlight two forms of the objective function, one where “the golden ratio” can be used to determine the optimal gain in the inventory and WIP feedback loop and another that allows the complete range of possible solutions to be visualised. It is interesting that the golden ratio, which commonly describes the optimum behaviour in the natural world, also describes the optimal feedback gain in a production and inventory control system.     

Managerial and Engineering Economics,by Arnold Reisman

In his recent paper (“Interest Rate Independent Present Value Ranking,” The Engineering Economist, Vol. 34, No. 2, 1989), W. H. Jean discusses the concept of the “time dominance,” developed for the interest rate independent ranking of mutually exclusive projects. He derives a set of conditions identifying the time dominance for the continuous model of time and value representation, and applies these conditions to cash flow series defined in terms of the discrete model. In the current contribution, the genuine time dominance conditions for the discrete model of time and value representation are derived, and it is shown that they are not only much more simple to handle than those presented by Jean, but are also a part of an already existing approach published earlier in this journal. Since Jean's conditions are valid only for the positive values of the interest rate, complementary conditions applicable for the negative interest rates, for both the discrete and continuous models, are also derived.     

Supply Chain Relationships for Customer Satisfaction in China: Interdependence and Cooperative Goals

This study develops a model based on Deutsch’s theory of cooperation and competition to clarify the supply chain relationships and interactions that contribute to customer satisfaction. Results of structural equation analyses suggest that organizations and suppliers and organizations and distributors who recognize each other’s importance develop cooperative rather than competitive and independent goals. With cooperative goals, they come to trust each other and work for continuous improvement; these relationships in turn result in the products and service that satisfy customers. Results were interpreted as suggesting that cooperative goals are an important basis for developing effective supply chain partnerships in Asia and perhaps in other regions as well.