Managerial flexibility strategies under supply and demand risks: quantity postponement vs. price postponement
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ORIGINAL ARTICLE
Managerial flexibility strategies under supply and demand risks: quantity postponement vs. price postponement Binwei Dong1 · Wansheng Tang1 · Chi Zhou2 Received: 11 February 2017 / Accepted: 19 June 2018 © Springer-Verlag GmbH Germany, part of Springer Nature 2018
Abstract The stochastic demand and the uncertain supply/yield are common marketing operation risks. To solve these risks, firms usually apply quantity postponement strategy or price postponement strategy to improve supply chain performance. In this paper, we consider a firm’s two-stage decisions model where the firm needs to make the price decision and the quantity decision under both supply and demand risks. And the risks response depending on different postponement strategies is the key factor for the firm. When the firm adopts the quantity postponement strategy, the expected yield is equal to the market demand. Furthermore, the demand risk does not affect the firm’s pricing decision, and the supply risk forces the firm to push up the product’s sale price and to decrease order quantity. However, when the firm adopts the price postponement strategy, the expected yield is higher than market demand which indicates the firm may confront a dilemma of overproduction. Meanwhile, both demand risk and supply risk cause the decrease of order quantity. In terms of the ability of mitigating both supply and demand risks, the two postponement strategies show different performance. The quantity postponement strategy can mitigate the demand risk, but the firm can not mitigate the supply risk by adopting price postponement strategy. Keywords Supply chain management · Uncertain supply · Uncertain demand · Postponement strategy · Uncertainty theory
1 Introduction With today’s increasing electronic commerce and changeable supply environment (i.e., outsourcing), demand uncertainty and supply uncertainty have still been the main concern of supply chain management. Demand uncertainty generally results in a situation where firms do not know market demand information and make price decision ineffectively. Different from the demand uncertainty, early ordering/production under uncertainty supply condition can lead to possession of production that may become of no use or obsolete [24]. Under both uncertain demand and supply, firms often face inefficient management operation and incur unbearable loss, like what happened to ship transport industry in recent ten years. According to the 2005 CIA World Factbook, the total number of merchant ships with at least 1,000 gross * Wansheng Tang [email protected] 1
Institute of Systems Engineering, Tianjin University, Tianjin 300072, China
School of Management, Tianjin University of Technology, Tianjin 300384, China
2
register tons in the world was 30,936. In 2010, it was 38,988, increased by 26%. However, ocean carriers took ships out of service: more than 11% of the global shipping fleet was idle in spring 2009 and this data became 11.6% in January 2010, according to AXS-Alphaliner, an industry consultant. The re
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