Academic journal article Journal of Business Economics and Management

Leadership Selection in an Unlimited Three-Echelon Supply Chain

Academic journal article Journal of Business Economics and Management

Leadership Selection in an Unlimited Three-Echelon Supply Chain

Article excerpt

1. Introduction

A management construct cannot be effectively used by practitioners and researchers if no uniform definition exists. Such is the case with the term "supply chain management", which has numerous definitions and little consensus on what it means (Mentzer et al. 2001). Supply chain paradigms of today have predominated over the field of business (Mentzer 2001). During the late 1950s, Forrester and his colleagues at the Massachusetts Institute of Technology developed a number of underlying ideas and theories (Blanchard 2010). The Council of Supply Chain Management Professionals (CSCMP) defines supply chain management (SCM) as the planning and management of all activities involved in sourcing and procurement, conversion and all logistics management activities (Stank et al. 2005). Many researchers believe that in the last decades, competition between companies has turn into competition between their supply chains (Jespersen, Larsen 2005).

Considering the role and importance of SCM, this concept is faced with many challenges and problems. Although no comprehensive model of SC issues exists, a literature review indicates that researchers are mostly interested in relevant information systems, marketing, financial management, logistical and organisational matters (Wang et al. 2007).

SCM is mostly focused on improving operations and increasing profits; thus, conflicting goals and objectives of two or more SC levels may result in problems for all levels and impact on the total profit. Numerous conflicting objectives of different components and levels may results in decreased strength and competitiveness of the entire supply chain. This paper considers the main conflicts related to inventory, pricing and marketing costs in an unlimited three-echelon SC. The game theory considers goals of all levels and players, which makes it a suitable and reliable tool for solving conflicting situations. On each level, the best leadership option with the greatest payoff is sought for between K retailer, M manufacturer and S supplier. According to Stackelberg non-cooperative game theory, each SC level can become a decision-making leader depending on the available negotiating power. Consequently, three leadership types are modelled on each level and the total SC profit is calculated and compared to ascertain the best option. Different models of leadership based on non-cooperative Stackelberg game theory are proposed to find the best option considering unlimited SC with three levels and three decision variables, namely inventory, marketing cost and pricing. The research considers shortages and incremental behaviour of a manufacturer as well as undertakes sensitivity analysis by design of experiment and validation of proposed models by simulation, which are its key contributions.

The paper is structured as follows: first, literature review is offered on SC coordination using game theory; next, assumption, steps and methodology pertaining to developed models are presented; then, variables and parameters are described. Three different leadership methods and three mathematical model based on non-cooperative game theory are then presented considering three types of negotiating power. The best leadership option is found simulating numerical examples with the help of design of experiment (DOE).

2. Literature review

As per definition, supply chain consists of all parties directly or indirectly involved in fulfilling a customer need (Chopra, Meindel 2007). This process involves all activities required to turn raw materials into a final product that is delivered to a customer (Gumus, Guneri 2007). Such activities and functions include new product development, marketing efforts, various other operations, distribution, financial and also customer services. A typical supply chain involves a variety of stages such as customers, retailers, wholesalers, distributors, manufacturers and raw material suppliers (Chopra, Meindel 2007). …

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