Investment Strategies in Supplier Development under Capacity and Demand Uncertainty

摘要

We study joint investment by a buyer and a supplier in improving the supplier’s capacityusing a Stackelberg game model.We analyze both buyer-led and supplier-led situations.We showthat in both cases the players have an opportunistic behavior toward investment.In the buyer-led game, when the buyer finds the supplier motivated enough to invest,he avoids any direct contribution on capacity improvement. In this situation, the buyerfollows an order inflation strategy to increase the investment of the supplier. However,when the supplier does not show the desire to make enough investment, the buyer willengage in direct investment in the supplier’s capacity.We showed that although the orderinflation strategy increases the buyer’s optimal order quantity, it does not coordinate thesupply chain. Also, in the case that the buyer is forced to share the investment costswith the supplier, he relies less on order inflation strategy. In the supplier-led game,we demonstrated that the buyer has no motivation to use order inflation strategy. Inthe case that the supplier is the only investor, the buyer-led game results in a higherprofit for the buyer, supplier, and the supply chain. Finally, we looked at two extensionswhere the supplier is penalized for unsatisfied demand and the buyer uses an orderpostponementstrategy.