IDEAS home Printed from https://ideas.repec.org/a/eee/proeco/v147y2014ipcp697-706.html
   My bibliography  Save this article

Market-based supplier selection with price, delivery time, and service level dependent demand

Author

Listed:
  • Qian, Li

Abstract

A market-based strategy is proposed for joint decisions on price, delivery time, service level, and supplier selection or investment. Product or service demand is modeled as a linear function of attributes including price, guaranteed delivery time, service level, or other quality-like performances and the profit is maximized as the objective. For different market segments or markets, market characteristics, namely customer sensitivity on attributes, differ. A supplier could be characterized by operation performance terms of cost, delivery time, service level, or quality. Results denote that operation characteristics of the supplier chosen should match market characteristics. Results show that, with stochastic delivery time, the service level is not always binding at the minimal value reserved by the manager or the market, which is assumed in the literature. There exists a limit on performance improvement due to cost increase, and there is a limit on cost reduction with decreased performance. Specifically, the less costly supplier must be chosen if the cost difference is more than one value, while the supplier with better performance must be chosen if the performance difference is more than another value. Those values are determined by current performance characteristics and market characteristics. The model is also applied in investment decision on cost reduction and delivery time reduction. There is a maximum value in spending to reduce delivery time and improve service level and quality. The model suggests that one firm could focus more on cost reduction or quality-like performance improvement based on market characteristics. The best market segment may exist for a firm with fixed operation performance. In one word, a firm′s operation characteristics and market characteristics must be matched for better profitability. Furthermore, concepts of lean manufacturing, emphasizing more on cost reduction, and flexible or agile manufacturing, emphasizing more on less delivery time or better service level, should be combined accordingly based on market characteristics.

Suggested Citation

  • Qian, Li, 2014. "Market-based supplier selection with price, delivery time, and service level dependent demand," International Journal of Production Economics, Elsevier, vol. 147(PC), pages 697-706.
    • Handle: RePEc:eee:proeco:v:147:y:2014:i:pc:p:697-706
    DOI: 10.1016/j.ijpe.2013.07.015
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0925527313003277
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ijpe.2013.07.015?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Liming Liu & Mahmut Parlar & Stuart X. Zhu, 2007. "Pricing and Lead Time Decisions in Decentralized Supply Chains," Management Science, INFORMS, vol. 53(5), pages 713-725, May.
    2. Haugen, Kjetil K. & Olstad, Asmund & Pettersen, Bard I., 2007. "The profit maximizing capacitated lot-size (PCLSP) problem," European Journal of Operational Research, Elsevier, vol. 176(1), pages 165-176, January.
    3. Tamer Boyaci & Saibal Ray, 2003. "Product Differentiation and Capacity Cost Interaction in Time and Price Sensitive Markets," Manufacturing & Service Operations Management, INFORMS, vol. 5(1), pages 18-36, May.
    4. Verma, Rohit & Pullman, Madeleine E., 1998. "An analysis of the supplier selection process," Omega, Elsevier, vol. 26(6), pages 739-750, December.
    5. So, Kut C. & Song, Jing-Sheng, 1998. "Price, delivery time guarantees and capacity selection," European Journal of Operational Research, Elsevier, vol. 111(1), pages 28-49, November.
    6. Ray, Saibal & Song, Yuyue & Verma, Manish, 2010. "Comparison of two periodic review models for stochastic and price-sensitive demand environment," International Journal of Production Economics, Elsevier, vol. 128(1), pages 209-222, November.
    7. Isabelle Huault & V. Perret & S. Charreire-Petit, 2007. "Management," Post-Print halshs-00337676, HAL.
    8. Fernando Bernstein & Awi Federgruen, 2007. "Coordination Mechanisms for Supply Chains Under Price and Service Competition," Manufacturing & Service Operations Management, INFORMS, vol. 9(3), pages 242-262, January.
    9. Awi Federgruen & Aliza Heching, 1999. "Combined Pricing and Inventory Control Under Uncertainty," Operations Research, INFORMS, vol. 47(3), pages 454-475, June.
    10. Kut C. So, 2000. "Price and Time Competition for Service Delivery," Manufacturing & Service Operations Management, INFORMS, vol. 2(4), pages 392-409, April.
    11. Qian, Li, 2011. "Product price and performance level in one market or two separated markets under various cost structures and functions," International Journal of Production Economics, Elsevier, vol. 131(2), pages 505-518, June.
    12. Ernst, Ricardo & Powell, Stephen G., 1995. "Optimal inventory policies under service-sensitive demand," European Journal of Operational Research, Elsevier, vol. 87(2), pages 316-327, December.
    13. Kilsun Kim & Dilip Chhajed, 2002. "Product Design with Multiple Quality-Type Attributes," Management Science, INFORMS, vol. 48(11), pages 1502-1511, November.
    14. Xiao, Tiaojun & Yang, Danqin, 2008. "Price and service competition of supply chains with risk-averse retailers under demand uncertainty," International Journal of Production Economics, Elsevier, vol. 114(1), pages 187-200, July.
    15. Ray, Saibal & Jewkes, E. M., 2004. "Customer lead time management when both demand and price are lead time sensitive," European Journal of Operational Research, Elsevier, vol. 153(3), pages 769-781, March.
    16. Rajiv D. Banker & Inder Khosla & Kingshuk K. Sinha, 1998. "Quality and Competition," Management Science, INFORMS, vol. 44(9), pages 1179-1192, September.
    17. Andy A. Tsay & Narendra Agrawal, 2000. "Channel Dynamics Under Price and Service Competition," Manufacturing & Service Operations Management, INFORMS, vol. 2(4), pages 372-391, August.
    18. Salvietti, Luciano & Smith, Neale R., 2008. "A profit-maximizing economic lot scheduling problem with price optimization," European Journal of Operational Research, Elsevier, vol. 184(3), pages 900-914, February.
    19. Gérard P. Cachon & Patrick T. Harker, 2002. "Competition and Outsourcing with Scale Economies," Management Science, INFORMS, vol. 48(10), pages 1314-1333, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Scott, James & Ho, William & Dey, Prasanta K. & Talluri, Srinivas, 2015. "A decision support system for supplier selection and order allocation in stochastic, multi-stakeholder and multi-criteria environments," International Journal of Production Economics, Elsevier, vol. 166(C), pages 226-237.
    2. Wetzstein, Anton & Hartmann, Evi & Benton jr., W.C. & Hohenstein, Nils-Ole, 2016. "A systematic assessment of supplier selection literature – State-of-the-art and future scope," International Journal of Production Economics, Elsevier, vol. 182(C), pages 304-323.
    3. José A. Novo‐Peteiro, 2023. "Product design with attribute dependence," Manchester School, University of Manchester, vol. 91(4), pages 361-385, July.
    4. Hu, Kuo-Jen & Yu, Vincent F., 2016. "An integrated approach for the electronic contract manufacturer selection problem," Omega, Elsevier, vol. 62(C), pages 68-81.
    5. Madjid Tavana & Salman Nazari-Shirkouhi & Hamidreza Farzaneh Kholghabad, 2021. "An integrated quality and resilience engineering framework in healthcare with Z-number data envelopment analysis," Health Care Management Science, Springer, vol. 24(4), pages 768-785, December.
    6. Sayid Albana, Abduh & Frein, Yannick & Hammami, Ramzi, 2018. "Effect of a lead time-dependent cost on lead time quotation, pricing, and capacity decisions in a stochastic make-to-order system with endogenous demand," International Journal of Production Economics, Elsevier, vol. 203(C), pages 83-95.
    7. Amorim, Pedro & Curcio, Eduardo & Almada-Lobo, Bernardo & Barbosa-Póvoa, Ana P.F.D. & Grossmann, Ignacio E., 2016. "Supplier selection in the processed food industry under uncertainty," European Journal of Operational Research, Elsevier, vol. 252(3), pages 801-814.
    8. Mohammed, Ahmed & Harris, Irina & Govindan, Kannan, 2019. "A hybrid MCDM-FMOO approach for sustainable supplier selection and order allocation," International Journal of Production Economics, Elsevier, vol. 217(C), pages 171-184.
    9. Aly Owida & P.J. Byrne & Cathal Heavey & Paul Blake & Khaled S. El-Kilany, 2016. "A simulation based continuous improvement approach for manufacturing based field repair service contracting," International Journal of Production Research, Taylor & Francis Journals, vol. 54(21), pages 6458-6477, November.
    10. Surendra Kansara & Sachin Modgil & Rupesh Kumar, 2023. "Structural transformation of fuzzy analytical hierarchy process: a relevant case for Covid-19," Operations Management Research, Springer, vol. 16(1), pages 450-465, March.
    11. Seifbarghy, Mehdi & Nouhi, Khashayar & Mahmoudi, Amin, 2015. "Contract design in a supply chain considering price and quality dependent demand with customer segmentation," International Journal of Production Economics, Elsevier, vol. 167(C), pages 108-118.
    12. Hou, Ruiqi & de Koster, René & Yu, Yugang, 2018. "Service investment for online retailers with social media—Does it pay off?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 118(C), pages 606-628.
    13. Hu, Shaolong & Dong, Zhijie Sasha, 2019. "Supplier selection and pre-positioning strategy in humanitarian relief," Omega, Elsevier, vol. 83(C), pages 287-298.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sun, Yiqi & Wu, Zhengping & Zhu, Wanshan, 2022. "When do firms benefit from joint price and lead-time competition?," European Journal of Operational Research, Elsevier, vol. 302(2), pages 497-517.
    2. Hammami, Ramzi & Frein, Yannick & Nouira, Imen & Albana, Abduh-Sayid, 2022. "On the interplay between local lead times, overall lead time, prices, and profits in decentralized supply chains," International Journal of Production Economics, Elsevier, vol. 243(C).
    3. Jayaswal, Sachin & Jewkes, Elizabeth & Ray, Saibal, 2011. "Product differentiation and operations strategy in a capacitated environment," European Journal of Operational Research, Elsevier, vol. 210(3), pages 716-728, May.
    4. Jayaswal, Sachin, 2014. "Priority Service System Optimization under Service Level Constraints," IIMA Working Papers WP2014-08-04, Indian Institute of Management Ahmedabad, Research and Publication Department.
    5. Jalili Marand, Ata & Li, Hongyan & Thorstenson, Anders, 2019. "Joint inventory control and pricing in a service-inventory system," International Journal of Production Economics, Elsevier, vol. 209(C), pages 78-91.
    6. Zhao, Jing & Zhang, Qin, 2021. "The effect of contract methods on the lead time of a two-level photovoltaic supply chain: revenue-sharing vs. cost-sharing," Energy, Elsevier, vol. 231(C).
    7. Zhu, Stuart X., 2015. "Integration of capacity, pricing, and lead-time decisions in a decentralized supply chain," International Journal of Production Economics, Elsevier, vol. 164(C), pages 14-23.
    8. Sharafali, Moosa & Tarakci, Hakan & Kulkarni, Shailesh & Razack Shahul Hameed, Raja Abdul, 2019. "Optimal delivery due date for a supplier with an unreliable machine under outsourced maintenance," International Journal of Production Economics, Elsevier, vol. 208(C), pages 53-68.
    9. Niu, Baozhuang & Dai, Zhipeng & Zhuo, Xiaopo, 2019. "Co-opetition effect of promised-delivery-time sensitive demand on air cargo carriers’ big data investment and demand signal sharing decisions," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 123(C), pages 29-44.
    10. Huang, Yeu-Shiang & Chen, Si-Hen & Ho, Jyh-Wen, 2013. "A study on pricing and delivery strategy for e-retailing systems," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 59(C), pages 71-84.
    11. Yang, Yang & Liu, Jie & Hu, Taizhong, 2023. "Capital allocation and pricing decisions under trade credit with time-sensitive stochastic demand," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 173(C).
    12. Wang, Yulan & Wallace, Stein W. & Shen, Bin & Choi, Tsan-Ming, 2015. "Service supply chain management: A review of operational models," European Journal of Operational Research, Elsevier, vol. 247(3), pages 685-698.
    13. Fernando Bernstein & Awi Federgruen, 2004. "A General Equilibrium Model for Industries with Price and Service Competition," Operations Research, INFORMS, vol. 52(6), pages 868-886, December.
    14. Abhijit Upasani & Reha Uzsoy, 2008. "Incorporating manufacturing lead times in joint production-marketing models: A review and some future directions," Annals of Operations Research, Springer, vol. 161(1), pages 171-188, July.
    15. Liming Liu & Mahmut Parlar & Stuart X. Zhu, 2007. "Pricing and Lead Time Decisions in Decentralized Supply Chains," Management Science, INFORMS, vol. 53(5), pages 713-725, May.
    16. Weixin Shang & Liming Liu, 2011. "Promised Delivery Time and Capacity Games in Time-Based Competition," Management Science, INFORMS, vol. 57(3), pages 599-610, March.
    17. Hu, Yinan & Guan, Yongpei & Liu, Tieming, 2011. "Lead-time hedging and coordination between manufacturing and sales departments using Nash and Stackelberg games," European Journal of Operational Research, Elsevier, vol. 210(2), pages 231-240, April.
    18. Xiao, Tiaojun & Choi, Tsan-Ming & Cheng, T.C.E., 2016. "Delivery leadtime and channel structure decisions for make-to-order duopoly under different game scenarios," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 87(C), pages 113-129.
    19. Vernon Ning Hsu & Chung Yee Lee & Kut C. So, 2006. "Optimal Component Stocking Policy for Assemble-to-Order Systems with Lead-Time-Dependent Component and Product Pricing," Management Science, INFORMS, vol. 52(3), pages 337-351, March.
    20. Gad Allon & Awi Federgruen, 2008. "Service Competition with General Queueing Facilities," Operations Research, INFORMS, vol. 56(4), pages 827-849, August.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:proeco:v:147:y:2014:i:pc:p:697-706. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ijpe .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.