Supply Chain Coordination with Controllable Lead Time and Asymmetric Information

Current literature shows that Just-in-Time(JIT) can significantly reduce lead time and inventory-related costs simultaneously.Time-based competition(TBC) focusing on the reduction of overall system lead time has been one of favorite topics for both researchers and practitioners.Lead time reduction can lower the amounts of safety stock,reduce the loss caused by stock-outs,and improve customer service levels.In today's hyper competitive environment,lead time reduction is becoming an effective way to increase supply chain response and an important source of competitive advantage.However,in most of the traditional economic order quantity(EOQ) literature dealing with inventory problem,either using deterministic or probabilistic models,lead time is viewed as a prescribed constant or a stochastic variable.Therefore,controlling lead time is not feasible and realistic in practical situations.To overcome the issue,an increasing number of literatures consider lead time as a decision variable.Still,these literatures either consider the controllable lead time optimization problem from the perspective of a single facility,or consider inventory models with controllable lead time from the perspective of integrated supply chains.An integrated supply chain assumes that a central planner possesses perfect information and has the power to impose a globally optimal inventory policy on each entity in order to maximize overall channel performance.In this paper,we make two major contributions to the present literature on supply chain optimization problems related to controllable lead time.First,we relax the assumption in the former literature from the perspective of supply chain by asserting that long-term strategic partnerships between vendor and buyer are well established and each party can bargain and cooperate with each other to obtain an optimal integrated joint policy under centralized decision.We further assume that the vendor and the buyer aim to maximize individual benefits in the decentralized(two-echelon) supply chain with controllable lead time.Second,in practical situations,the information asymmetry problem exists in the entire supply chain because individual parties are reluctant of disclosing confidential information such as internal variable cost.Information asymmetry can confer incentive mechanisms designed for symmetric information ineffective.As a result,scholars and practitioners are paying attention to the importance of coordinated relationships between suppliers and buyers in a supply chain under the condition of asymmetric information.This paper considers the setting where the buyer has private cost information and the vendor uses different sets of coordination mechanisms based on the screening game theory.Through the buyer's selection,the vendor can learn about the buyer's real cost indirectly and improve the cost of managing supply chains.The results of our numerical examples show that shortening lead time can improve the benefit of the entire supply chain system in comparison with fixing lead time.Our proposed coordination mechanisms can improve the management of supply chain costs in both symmetric and asymmetric information situations.