Lecture Slides3_SupplyContracts

Lecture Slides3_SupplyContracts - Supply Contracts and...

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1 Supply Contracts and Procurement Copyright © 2007 Phil Kaminsky Phil Kaminsky [email protected] Strategic Components Relationships between buyers and suppliers key Relationships may be informal, or contractua 1-2 © 2005 Phil Kaminsky contractual What should contracts specify? The Traditional Supply Chain A buyer and a supplier. Assume supplier is MTO, buyer MTS What are the buyer’s activities? What are the supplier’s activities? 1-3 © 2005 Phil Kaminsky What are the supplier s activities?
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2 Fixed Production Cost =$100,000 Variable Production Cost=$55 Wholesale Price =$80 Supply Contracts: The Retailer in the Traditional System 1-4 © 2005 Phil Kaminsky Manufacturer Manufacturer DC Retail DC Stores Selling Price=$125 Salvage Value=$20 Demand Scenarios 1-5 © 2005 Phil Kaminsky 0% 5% 10% 15% 20% 8000 1000 0 1 2 14000 1600 8 Sales Probab Fixed Production Cost =$100,000 Variable Production Cost=$35 Wholesale Price =$80 Supply Contracts: The Manufacturer in the Traditional System 1-6 © 2005 Phil Kaminsky Manufacturer Manufacturer DC Retail DC Stores Selling Price=$125 Salvage Value=$20
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3 What Is the Optimal Order Quantity? What is retailers marginal profit? Manufacturer’s? is the same as the marginal profit of the manufacturer, $45. Will retailer order more or less than average 1-7 © 2005 Phil Kaminsky How would you do the calculations? If you do, the retailers optimal policy is to order 12,000 units for an average profit of $470,700. What is the manufacturer’s profit in this case? Supply Contracts What is the supply chain profit in this case? What kind of optimization is this? Who takes the What would the manufacturer and the retailer like to see? 1-8 © 2005 Phil Kaminsky What can make this happen? How can the risk be shared? Supply Contracts: Buyback Strategy Retailer Manufacturer Total Sequential Optimization 470,700 440,000 910,700 Buyback 513,800 471,900 985,700 1-9 © 2005 Phil Kaminsky Manufacturer Manufacturer DC Retail DC Stores Selling Price=$125 Salvage Value=$20 Salvage $55
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4 Fixed Production Cost =$100,000 Variable Production Cost=$35 Supply Contracts: Revenue Sharing Wholesale Price =$70 1-10 © 2005 Phil Kaminsky Manufacturer Manufacturer DC Retail DC Stores 15 Percent Sequential Optimization 470,700 440,000 910,700 Buyback 513,800 471,900 985,700 Revenue Sharing 504,325 481,375 985,700 Global Optimization Strategy What is the best strategy for the entire supply chain?
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This note was uploaded on 04/25/2011 for the course IND ENG 153 taught by Professor Kaminsky during the Spring '11 term at Berkeley.

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Lecture Slides3_SupplyContracts - Supply Contracts and...

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