Summer Workshop on

Frontiers of Research in Supply Chain Management

供应链研究前沿问题研讨班

Academy of Mathematics and System Science, CAS

National Natural Science Foundation of China

Operations Research Society of China

Beijing

June 14--16, 2007

To continuously promote the research and practices of Management Science/Operations Research in China, Academy of Mathematics and System Sciences, Chinese Academy of Sciences (CAS), and The Operations Research Society of China are jointly organizing a summer workshop on “Frontiers of Research in Supply Chain Management”. World renowned researchers are invited to present the state-of-art research of the subject areas. The objective is to expose the latest developments in supply chain research to the young faculty members and graduate students in Chinese universities and research institutions.

Faculty members/researchers and graduate students are encouraged to apply to attend the workshop. The workshop attendants will not only be introduced to the latest research works in design, analysis, and optimization of supply chains and logistics, they will also get the opportunity to interact with world class researchers in their respective research fields and develop research collaboration relationships with them.

This is the third of a series of multi-year workshops, with each year emphasizing a particular theme of Management Science/Operations Research. It is hoped that through these workshops, the research activities in these areas in China will be brought to a new level.

Organized by

Academy of Mathematics and Systems Science, CAS

Operations Research Society of China

Workshop Co-Chairs

Xiuli CHAO (赵修利), University of Michigan, Ann Arbor, USA, and Tsinghua University, China.

Hanqin ZHANG（张汉勤）, Academy of Mathematics and Systems Science, CAS, China

Workshop Organization Committee

Xiaoqiang Cai (CUHK, HK), Bintong Chen (WSU, USA), Fangruo Chen (Columbia Univ, USA), Frank Chen (CUHK, HK), Hong Chen (UBC, Canada and CKGSB, China), Jian Chen (Tsinghua , China), Jim Dai (Georgia Tech, USA), Shu-Cherng Fang (Tsinghua, China, NCSU, USA),Youyi Feng (CUHK, HK), Qi-Ming He (Dalhousie Univ, Canada), Verson N. Hsu (George Mason Univ, USA), Haijun Huang (BUAA, China), Jianmin Jia (CUHK, HK), Steven Kou (Columbia Univ, USA), Duan Li (CUHK, HK), Lode Li (Yale Univ, USA), John Liu (HK Poly Univ, HK), Liming Liu (HKUST, HK), Jihong Ou (NUS, Singapore), Max (Zuo-Jun) Shen (UC Berkeley, USA), Leyuan Shi (Univ of Wisconsin, Madison, USA), Jing-Sheng Song (Duke Univ, USA), Lixin Tang (Northeastern Univ, China), Shouyang Wang (AMSS, CAS), Bai-Chun Xiao (Long Island Univ, USA), Jinxing Xie (Tsinghua, China), Wenxun Xing (Tsinghua, China), Susan Xu (Penn State Univ. USA), Yifan Xu (Fudan Univ, China), Yin-Feng Xu (XJTU, China), Houmin Yan (CUHK, HK), David Yao (Columbia Univ, USA, Tsinghua, China, and CUHK, HK), George Yin (Wayne State Univ. USA), Yaxiang Yuan (AMSS, CAS, China), Hongtao Zhang (HKUST, HK), Qing Zhang (Univ of Georgia, USA), Rachel Zhang (HKUST, HK), Shuzhong Zhang (CUHK, HK), Xiang-Sun Zhang, (AMSS, CAS), Xiaobo Zhao (Tsinghua, China), Yiqiang Zhao (Carlton Univ, Canada), Li Zheng (Tsinghua, China), Shaohui Zheng (HKUST, HK), Yu-Sheng Zheng (Univ of Penn, USA), Xun-Yu Zhou (CUHK, HK).

Workshop Speakers:

Volodymyr Babich

University of Michigan, USA

Talk: Supply Risk Management: the Role of Financial Subsidies, Competition, and Asymmetric Information (ppt)

Yehuda Bassok

University of Southern California, USA

Talk: Cooperation, Coordination, and Competition in Supply Chains (ppt)

Saif Benjaafar

University of Minnesota, Minneapolis, USA

Talk: Production-Inventory Networks: Perspectives and Recent Advances (ppt)

Albert Ha

Hong Kong University of Science and Technology, HK

Talk: Contracting and Information Sharing under Supply Chain Competition (ppt)

Geert-Jan van Houtum

Eindhoven University of Technology, The Netherlands

Talk: Multi-Echelon Production/Inventory Systems: Optimal Policies, Heuristics, and Algorithms (ppt)

Woonghee Tim Huh

Columbia University, USA

Talk: A Non-Parametric Data-Driven Approach to Inventory Planning and Revenue Management (ppt)

Maurice Queyranne

University of British Columbia, Canada

Talk: The competitive analysis of on-line algorithms and robust decisions in Operations Management and Revenue Management (ppt)

Matthew Sobel

Case Western Reserve University, USA

Talk: Risk-Sensitive Markov Decision Processes (ppt)

Greys Sosic

University of Southern California, USA

Talk: Stable and Farsighted Alliance Formation (ppt)

Candace Yano

University of California at Berkeley, USA

Talk: Impact of Manufacturing Capacity Constraints on Pricing Decisions Retail Supply Chains with Competing Products (ppt)

Paul Zipkin

Duke University, USA

Talk: RFID: Cool Technology, Hot Debate (ppt)

Workshop Location:

Siyuan Building Lecture Hall, Academy of Mathematics and System Sciences, Chinese Academy of Sciences, Beijing.

Contact person: Prof. Hanqin Zhang. Tel: (10) 6254-1686

Email: hanqin@amt.ac.cn

Workshop Website:

http://www.orsc.org.cn/conferences/2007summer_school/stoch-model.htm

Abstract of Talks:

1. Title: Supply Risk Management: the Role of Financial Subsidies, Competition, and Asymmetric Information

Volodymyr Babich, Department of Industrial and Operations Engineering, University of Michigan, Ann Arbor, MI, USA

Abstract: The majority of the traditional enterprise risk management research assumes that the uncertainty in the model is exogenously given and all parties have the same information about it. In this talk we will discuss some of the consequences of relaxing these assumptions based on three models that deal with supply risk management. First, as recent examples from the automotive industry illustrate, even large suppliers (e.g. Delphi) could file for bankruptcy and manufacturer’s actions, such as financial subsidies, could affect profoundly suppliers’ financial states. Using a dynamic, stochastic, periodic-review model of manufacturer’s joint operational and financial decisions and Merton-type model of supplier’s bankruptcy, we address the following questions: (1) How can one model supplier's financial state and the relationship between supplier's financial state and supplier's operational performance? (2) What are the benefits to the manufacturer from giving financial subsidies to the suppliers, and what are the costs? (3) What are the optimal joint ordering and financial subsidy policies of the manufacturer? We provide conditions that allow the manufacturer to make the ordering decision independently from the subsidy decisions and, in particular, to use the traditional newsvendor critical fractile expression to choose the optimal order quantities. We show that the optimal subsidy policy has the “subsidy-up-to” structure. We perform comparative statics analysis and describe conditions when the powerful manufacturer may choose to share some of the supply chain profits with the supplier. Second, we study the effects of supply disruption risk in a supply chain where one buyer deals with competing risky suppliers who may default during their production lead-times. The suppliers, who compete for business with the buyer by setting wholesale prices, are leaders in a Stackelberg game with the buyer. The buyer, facing uncertain future demand, chooses order quantities while weighing the benefits of procuring from the cheapest supplier against the advantages of order diversification. For the model with two suppliers we show that a low supplier default correlation dampens competition among the suppliers, increasing the equilibrium wholesale prices. Therefore, the buyer prefers suppliers with highly correlated default events, despite the loss of diversification benefits. In contrast, the suppliers and the channel prefer defaults that are negatively correlated. However, as the number of suppliers increases our model predicts that the buyer may be able to take advantage of both competition and diversification. Third, to investigate the interactions between asymmetric information and risk management, we consider a simple, two-echelon, supply chain with a supplier and a manufacturer. The supplier’s production is subject to random disruptions, whose likelihood is the supplier’s private information. A backup production technology is available to the supplier. The supplier’s decision to use this backup production option depends on the contract terms offered by manufacturer, in particular, on shortage penalties. We solve the manufacturer’s contracting problem and compute the values of symmetric information, the values of backup production capacity, and the interaction between those values for the manufacturer, the supplier, and the channel. Our analysis suggests that key consideration for the manufacturer is the tradeoffs between informational rent and losses due to imperfect execution of risk-management actions. We find that an introduction of cheap backup production technology by the suppliers, while benefiting the manufacturer and the channel, are detrimental to the profits of the already reliable suppliers. With cheap backup production option available, the benefit of reducing information asymmetry for the manufacturer is small (thus, the two approaches for improving manufacturer’s risk profile considered in this paper: learning about the supplier and introducing backup production option are substitutable). When the cost of backup production option is moderate the benefit of reducing information asymmetry for the manufacturer is the highest (thus, the two approaches are complimentary).

2. Title: Cooperation, Coordination, and Competition in Supply Chains

Yehuda Bassok, Marshall School of Business, University of Southern California, Los Angeles, CA, USA

Abstract: Supply chains are becoming larger and more complex. One source of complexity in managing large supply chains is the simple fact that supply chains are composed of many different players (suppliers, assemblers, retailers etc) each with his own interests and objectives. It is quite clear that these objectives are not aligned together and that each "horse" might be pulling the wagon in a different direction, and by doing so reduces the total profit for the entire supply chain. We are interested to design methods so that the different players will actually benefit for coordinating between themselves even though each of them is interested only in maximizing its own profit. Such mechanisms may involve sharing information about demand forecast, committing to sell and buy certain quantities and sharing risks. We discuss the benefits and disadvantages of such arrangements.

3. Title: Production-Inventory Networks: Perspectives and Recent Advances

Saif Benjaafar, Industrial & Systems Engineering Division, Department of Mechanical Engineering, University of Minnesota, Minneapolis, MN, USA

Abstract. Production-inventory networks are systems consisting of multiple production facilities and inventory locations that may produce multiple items in multiple stages for multiple customer classes. Examples include series, assembly, disassembly, and distribution systems. We will review challenges and opportunities in modeling, analysis and control of these systems when demand and production times are stochastic. Because of the multi-dimensional nature of these problems, their analysis has been challenging and few results are known. We will discuss a series of recent papers in which we characterize the structure of optimal policies for systems with several dimensions. We will show how these structural results can be used to (1) expedite solution times, (2) construct simple yet effective heuristics, and (3) derive practical managerial insights. We will illustrate our results with examples from assembly systems and systems with imperfect advance demand information, in each case with multiple stages and multiple customer classes.

4. Title: Contracting and Information Sharing under Supply Chain Competition

Albert Ha, Department of Information and Systems Management, Hong Kong University of Science and Technology, Hong Kong.

Abstract: We consider the problem of how firms design supply contract and share information for supply chains under horizontal competition and asymmetric information. The problem is studied using a model of two supply chains, each consists of one manufacturer and one retailer. Each retailer will observe a private demand signal and decide whether to share it with the manufacturer of his own chain. A multi-stage game is formulated to analyze how different firms make information sharing, contracting and retail quantity (or price) decisions. For a perfect demand signal model with Cournot competition, we show that the incentives of information sharing are positive under quantity-based contract menus but become negative under linear price contracts. We also show that a lower information sharing cost (or a higher information sharing capability) is a competitive advantage, which is more significant when the competing supply chain that has a higher cost is induced not to invest in information sharing and is made less aggressive due to the use of contract menus. For an imperfect demand signal model with linear price contracts, we show that the incentives for information sharing are always negative under Cournot competition but can be positive or negative under Bertrand competition. For the latter case, it is more likely for a supply chain to have positive incentives for information sharing when the signal precision (or forecasting capability) of either supply chain becomes higher. We also show that a higher signal precision is a competitive advantage to a supply chain.

5. Title: Multi-Echelon Production/Inventory Systems: Optimal Policies, Heuristics, and Algorithms

Geert-Jan van Houtum, Department of Operations Management, Eindhoven University of Technology, the Netherlands

Abstract: The theory on multi-echelon production/inventory systems is a core theory within supply chain management. It provides useful insights for design of supply chains and may be used for tactical and operational planning decisions. The multi-echelon theory started with the seminal paper of Clark and Scarf in 1960. In this tutorial, we describe for which systems optimal policies are known, which key features are needed for these optimal policy structures, and we discuss heuristics for systems of which the optimal policy structure is not known. We describe the complete analysis for the most basic multi-echelon production/inventory system: the serial, two-echelon production/inventory system with linear inventory holding and backordering costs. We show that basestock policies are optimal, we derive a decomposition result for the determination of optimal basestock levels, we present Newsboy equations for the optimal basestock levels, and we discuss computational procedures. Next, we describe a variety of systems for which generalized classes of basestock policies have been derived to be optimal. This includes assembly systems and systems with fixed batch sizes, fixed replenishment intervals, generalized demand processes, and a service level constraint instead of backordering costs. Finally, we discuss approaches that have been taken for distribution systems and systems with a general structure.

6. Title: A Non-Parametric Data-Driven Approach to Inventory Planning and Revenue Management

Woonghee Tim Huh, Department of Industrial Engineering and Operations Research, Columbia University, New York, USA

Abstract: We consider inventory planning and revenue management problems where the distribution of demand distribution is not available a priori, and lost sales are not observable. We take a non-parametric approach, and propose adaptive algorithms that generate a sequence of ordering decisions over time, where the decision in each period depends only on historical sales data. We show that our adaptive algorithms converge to the optimal solution, and establish the convergence rate.

7. Title: The competitive analysis of on-line algorithms and robust decisions in Operations Management and Revenue Management

Maurice Queyranne, Operations & Logistics Division, Sauder School of Business, The University of British Columbia, Canada

Abstract: Business decisions are generally made on-line, i.e., before full information is available, and there is a need for robust decisions, which perform well under different circumstances. Consider sequences of “requests” which arrive unpredictably over time, but which must be served when they arise. The competitive ratio of a policy relative to a given input sequence is the ratio of the policy's performance to the (offline) optimal performance that would be achieved with perfect foresight on that input sequence. We seek policies with the highest possible competitive ratio in the worst case, i.e., providing a performance guarantee which holds for any input sequence. We demonstrate this approach with three classes of decisions: 1) equipment buy or lease decisions (the “ski rental problem”); 2) booking decisions for an airline flight with given fare classes (robust Revenue Management); and 3) on-line job scheduling decisions on a single machine.

8. Title: Risk-Sensitive Markov Decision Processes

Matthew Sobel, Weatherhead School of Management, Case Western Reserve University, Cleveland, OH, USA

Abstract: This talk is about optimization criteria in MDPs (Markov decision processes). The usual MDP optimization criteria are risk neutral, but the first part of this talk considers mean-variance tradeoffs in MDPs, and presents formulas and algorithms. The second part of the talk includes an explanation of the surprising fact that discounting carries the seed of risk neutrality. The talk clarifies when joint preferences over time and risk correspond to discounting without risk neutrality.

9. Title: Stable and Farsighted Alliance Formation

Greys Sosic, Marshall School of Business, University of Southern California, Los Angeles, CA, USA

Abstract: In this talk, I present some results on alliances formation in supply chains. I use the notion that players are farsighted in making decisions. Farsighted concepts are generally weaker, and thus richer than myopic stability concepts. Farsighted players contemplate the possibility that, once they act, a second coalition may react, then a third coalition may further react and so on, eventually leading to an outcome benefiting/worsening the situation of some or all the initially involved layers. Thus, farsighted stability concepts capture changes in coalition structure (through defections and regrouping) that markets can see before some sort of stability is attained. Myopic concepts (such as, for instance, the core or the Nash equilibrium) are by their nature static and cannot incorporate such dynamics. I illustrate these concepts and differences between myopic and farsighted stability using examples from some of my recent papers. Further, I show some important theoretical relationships between the various farsighted concepts.

10. Title: Impact of Manufacturing Capacity Constraints on Pricing Decisions Retail Supply Chains with Competing Products

Candace Yano, Department of Industrial Engineering and Operations Research, University of California at Berkeley, CA, USA

Abstract: There are thousands of research papers that consider pricing decisions under various types of competition, but the vast majority of these papers ignore either manufacturing capacity constraints or the role of the retailer in determining the ultimate customer demand. In this presentation, we consider three scenarios (time permitting) in which there are two competing but differentiated products sold by a retailer, and one or both manufacturers of these products face potentially restrictive capacity limitations. Each manufacturer must decide his wholesale price considering his own capacity constraint and the response from the competitor, and the retailer sets retail prices to maximize total profit from both products given the wholesale prices offered by the manufacturers.

In the first scenario, there are two major “brand-name” products that are produced by manufacturers that are independent from the retailer. In the second scenario, the retailer owns a factory that produces a so-called “store brand” or “private label” product that competes with a brand-name product. In the third scenario, we consider what happens if the retailer outsources its production by turning control of its capacity-constrained factory over to an independent firm. We present equilibrium outcomes from either Stackelberg or Nash games, as applicable, and discuss how the results differ from those obtained in earlier papers that ignore either capacity constraints or the role of the retailer.

11. Title: RFID: Cool Technology, Hot Debate

Paul Zipkin, Fuqua School of Business, Duke University, Durham, NC, USA

Abstract: Bar codes and the internet have transformed the landscape of commerce, enabling entirely new categories of products and services, as well as substantial efficiencies. Certain new process technologies offer similar promises. This talk explores one of them, RFID. What is it? Will it work? Will people and companies embrace them? Will it really achieve the benefits envisioned? When?

Location:

Academy Mathematics and Systems Science, CAS, Zhong-Guan-Cun Dong Lu 55, Haidian District, Beijing, 100080.

Contact person: Prof. Hanqin Zhang

Tel: 10-62541686; 10-62541695

Email: hanqin@amt.ac.cn; orsc@amt.ac.cn

Summer Workshop Website:

http://www.orsc.org.cn/conferences/2007summer_school/stoch-model.htm