Supply chain network redesign with demand and price uncertainty

Jahani, H, Abbasi, B, Alavifard, F and Talluri, S 2018, 'Supply chain network redesign with demand and price uncertainty', International Journal of Production Economics, vol. 205, no. November2018, pp. 287-312.

Document type: Journal Article
Collection: Journal Articles

Title Supply chain network redesign with demand and price uncertainty
Author(s) Jahani, H
Abbasi, B
Alavifard, F
Talluri, S
Year 2018
Journal name International Journal of Production Economics
Volume number 205
Issue number November2018
Start page 287
End page 312
Total pages 26
Publisher Elsevier BV
Abstract When new products are introduced into a supply chain, the existing logistics may no longer optimally meet the objectives of the enterprise. This paper provides an analytical approach to redesigning a supply chain network (SCN), considering its current infrastructure. While aiming to maximise total profit, we take into consideration the demand and price uncertainty and their correlation as two important risk factors, and formulate them using associated Brownian motions employed in a real options pricing approach. Our model captures multiple periods and cash flow aspects through a non-linear structure. In the solution approach, we apply a novel piecewise linear conversion. Our theoretical model is complemented by a realistic case study from the Australian cement industry. We demonstrate significant improvements in the financial position of the company after redesigning its SCN. For instance, SCN redesign increases total profit by 49%, while the profit from the existing product increases by 23%. The results also indicate that ignoring the effect of the correlation leads to profit overestimation.
Subject Logistics and Supply Chain Management
Operations Research
Keyword(s) Supply chain management (SCM)Supply chain network (SCN)Real option (RO)Geometric Brownian motion (GBM)Stochastic demand and price
DOI - identifier 10.1016/j.ijpe.2018.08.022
Copyright notice © 2018 Elsevier BV
ISSN 0925-5273
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