Multi-period Competition in a Supply
Chain Network under Demand
Uncertainties and Impact of Supply Side
Disruptions
Reetabrata
Mookherjee, Terry L. Friesz,
and Matthew A. Rigdon
Department of Industrial & Manufacturing
Engineering
The
E-mail: {reeto,tfriesz,marigdon}@psu.edu
We
present a finite horizon stochastic dynamic game involving competing
manufacturers and their suppliers. We describe impacts of supply side
disruptions on the equilibrium of the game and discuss some effective risk
mitigating strategies. The dynamic
supply chain game we consider involves a small number of make-to-order manufacturers
who form an oligopoly and produce a family of products using a common product
platform. They set the prices of their final differentiated products, accept backorders
and face price elastic random demands for their finished goods. Furthermore, these
firms procure their input factors (components) in a just-in-time fashion from a
small number of suppliers. The capability of any given supplier to provide any
given input factor has a finite upper bound. Consequently, explicit production
lead times are intrinsic to the strategies of the manufacturers. Moreover, the competing manufacturing firms
face a finite planning horizon arising from relatively short selling periods
(for style goods) and also from fast product obsolescence (for electronics
component manufacturers). Therefore, each of the competing manufacturers we
model needs to make combined sourcing, production and pricing decisions at the
beginning of the planning horizon that they follow until the end of the planning
horizon. The resulting non-cooperative dynamic game is a generalized Nash game whose
equilibrium may be conveniently articulated as a restricted finite dimensional variational inequality. We establish existence of at least
one pure strategy Nash equilibrium and outline some of the qualitative
properties of that equilibrium. We also outline an efficient algorithm to
compute an equilibrium of the game…