Showing papers in "Naval Research Logistics in 2005"

On Kuhn's Hungarian Method—A tribute from Hungary

Abstract: Harold W. Kuhn, in his celebrated paper entitled The Hungarian Method for the as-signment problem, [Naval Research Logistic Quarterly, 2 (1955), pp. 83-97] describedan algorithm for constructing a maximum weight perfect matching in a bipartitegraph. In his delightful reminescences [18], Kuhn explained how the works (from1931) of two Hungarian mathematicians, D. K˝onig and E. Egervary, had contributedto the invention of his algorithm, the reason why he named it the Hungarian Method.(For citations from Kuhn’s account as well as for other invaluable historical notes onthe subject, see A. Schrijver’s monumental book [20].)In this note I wish to pay tribute to Professor H.W. Kuhn by exhibiting the ex-act ralationship between his Hungarian Method and the achievements of Konig andEgerv´ary, and by outlining the fundamental influence of his algorithm on Combina-torial Optimization where it became the prototype of a great number of algorithmsin areas such as network flows, matroids, and matching theory. And finally, as aHungarian, I would also like to illustrate that not only did Kuhn make use of ideas ofHungarian mathematicians, but his extremely elegant method has had a great impacton the work of a next generation of Hungarian researchers.

Robust Capacity Planning in Semiconductor Manufacturing

Abstract: We present a stochastic programming approach to capacity planning under demand uncertainty in semiconductor manufacturing. Given multiple demand scenarios together with associated probabilities, our aim is to identify a set of tools that is a good compromise for all these scenarios. More precisely, we formulate a mixed-integer program in which expected value of the unmet demand is minimized subject to capacity and budget constraints. This is a dicult two-stage stochastic mixed-integer program which can not be solved to optimality in a reasonable amount of time. We instead propose a heuristic that can produce near-optimal solutions. Our heuristic strengthens the linear programming relaxation of the formulation with cutting planes and performs limited enumeration. Analyses of the results in some real-life situations are also presented.

A model to predict the residual life of aircraft engines based upon oil analysis data

Abstract: This paper reports on a study using the available oil monitoring information, such as the data obtained using the Spectrometric Oil Analysis Programme (SOAP), to predict the residual life of a set of aircraft engines. The relationship between oil monitoring information and the residual life is established using the concept of the proportional residual, which states that the predicted residual life may be proportional to the wear increment measured by the oil analysis programmes. Assuming such a relationship between wear and the residual life exists, we formulated a recursive prediction model for the item's residual life given measured oil monitoring information to date. A set of censored life data of 30 aircraft engines (right censored due to preventive overhaul) along with the history of their monitored metal concentration information are available to us. The metal concentration information includes many variables, such as Fe, Cu, Al, etc.; not all of them are useful, and some of them may be correlated. The principal component analysis (PCA) has been adopted to reduce the dimension of the original data set and to produce a new set of uncorrelated variables, which we shall use in the prediction model. The procedure associated with estimating model parameters is discussed. The model is fitted to the actual SOAP data from the aircraft engines, and the goodness-of-fit test has been carried out. © 2005 Wiley Periodicals, Inc. Naval Research Logistics, 2005.

Scheduling a production–distribution system to optimize the tradeoff between delivery tardiness and distribution cost

Abstract: We consider a make-to-order production–distribution system with one supplier and one or more customers. A set of orders with due dates needs to be processed by the supplier and delivered to the customers upon completion. The supplier can process one order at a time without preemption. Each customer is at a distinct location and only orders from the same customer can be batched together for delivery. Each delivery shipment has a capacity limit and incurs a distribution cost. The problem is to find a joint schedule of order processing at the supplier and order delivery from the supplier to the customers that optimizes an objective function involving the maximum delivery tardiness and the total distribution cost. We first study the solvability of various cases of the problem by either providing an efficient algorithm or proving the intractability of the problem. We then develop a fast heuristic for the general problem. We show that the heuristic is asymptotically optimal as the number of orders goes to infinity. We also evaluate the performance of the heuristic computationally by using lower bounds obtained by a column generation approach. Our results indicate that the heuristic is capable of generating near optimal solutions quickly. Finally, we study the value of production–distribution integration by comparing our integrated approach with two sequential approaches where scheduling decisions for order processing are made first, followed by order delivery decisions, with no or only partial integration of the two decisions. We show that in many cases, the integrated approach performs significantly better than the sequential approaches. © 2005 Wiley Periodicals, Inc. Naval Research Logistics, 2005

Disruption management in production planning

Abstract: We study the problem of recovering a production plan after a disruption, where the disruption may be caused by incidents such as power failure, market change, machine breakdown, supply shortage, worker no-show, and others. The new recovery plan we seek after has to not only suit the changed environment brought about by the disruption, but also be close to the initial plan so as not to cause too much customer unsatisfaction or inconvenience for current-stage and downstream operations. For the general-cost case, we propose a dynamic programming method for the problem. For the convex-cost case, a general problem which involves both cost and demand disruptions can be solved by considering the cost disruption first and then the demand disruption. We find that a pure demand disruption is easy to handle; and for a pure cost disruption, we propose a greedy method which is provably efficient. Our computational studies also reveal insights that will be helpful to managing disruptions in production planning. © 2005 Wiley Periodicals, Inc. Naval Research Logistics 52: 420 - 442, 2005.

On the effectiveness of returns policies in the price-dependent newsvendor model

Abstract: We study in this paper the price-dependent (PD) newsvendor model in which a manufacturer sells a product to an independent retailer facing uncertain demand and the retail price is endogenously determined by the retailer. We prove that for a zero salvage value and some expected demand functions, in equilibrium, the manufacturer may elect not to introduce buybacks. On the other hand, if buybacks are introduced in equilibrium, their introduction has an insignificant effect on channel efficiency improvement, but, by contrast, may significantly shift profits from the retailer to the manufacturer. We further demonstrate that the introduction of buybacks increases the wholesale price, retail price, and inventory level, as compared to the wholesale price-only contract, and that the corresponding vertically integrated firm offers the lowest retail price and highest inventory level. © 2005 Wiley Periodicals, Inc. Naval Research Logistics, 2005.

Properties of the Geometric and Related Processes

Abstract: Some properties of the geometric process are studied along with those of a related process which we propose to call the -series process. It is shown that the expected number of counts at an arbitrary time does not exist for the decreasing geometric process. The decreasing version of the -series process does have a finite expected number of counts, under certain conditions. This process also has the same advantages of tractability as the geometric process; it exhibits some properties which may make it a useful complement to the increasing geometric process. In addition, it may be fit to observed data as easily as the geometric process. Applications in reliability and stochastic scheduling are considered in order to demonstrate the versatility of the alternative model. © 2005 Wiley Periodicals, Inc. Naval Research Logistics 52: 607- 616, 2005.

Optimal joint preventive maintenance and production policies

Abstract: We study joint preventive maintenance (PM) and production policies for an unreliable production-inventory system in which maintenance/repair times are non-negligible and stochastic. A joint policy decides (a) whether or not to perform PM and (b) if PM is not performed, then how much to produce. We consider a discrete-time system, formulating the problem as a Markov decision process (MDP) model. The focus of the work is on the structural properties of optimal joint policies, given the system state comprised of the system's age and the inventory level. Although our analysis indicates that the structure of optimal joint policies is very complex in general, we are able to characterize several properties regarding PM and production, including optimal production/maintenance actions under backlogging and high inventory levels, and conditions under which the PM portion of the joint policy has a control-limit structure. In further special cases, such as when PM set-up costs are negligible compared to PM times, we are able to establish some additional structural properties. © 2005 Wiley Periodicals, Inc. Naval Research Logistics 52: 668 - 681, 2005.

Transshipment through crossdocks with inventory and time windows

Abstract: The supply chain between manufacturers and retailers always includes transshipments through a network of locations. A major challenge in making demand meet supply has been to coordinate transshipment activities across the chain aimed at reducing costs and increasing service levels in the face of a range of factors, including demand fluctuations, short lead times, warehouse limitations and transportation and inventory costs. The success in implementing push-pull strategies, when firms change from one strategy to another in managing the chain and where time lines are crucial, is dependent on adaptive transshipment scheduling. Yet again, in transshipment through crossdocks, where just-in-time objectives prevail, precise scheduling between suppliers, crossdocks and customers is required to avoid inventory backups or delays.

Commitment decisions with partial information updating

Abstract: In this paper, we extend the results of Ferguson M. Naval Research Logistics 50, 2003, 917-936. on an end-product manufacturer's choice of when to commit to an order quantity from its parts supplier. During the supplier's lead-time, information arrives about end-product demand. This information reduces some of the forecast uncertainty. While the supplier must choose its production quantity of parts based on the original forecast, the manufacturer can wait to place its order from the supplier after observing the information update. We find that a manufacturer is sometimes better off with a contract requiring an early commitment to its order quantity, before the supplier commits resources. On the other hand, the supplier sometimes prefers a delayed commitment. The preferences depend upon the amount of demand uncertainty resolved by the information as well as which member of the supply chain sets the exchange price. We also show conditions where demand information updating is detrimental to both the manufacturer and the supplier. © 2005 Wiley Periodicals, Inc. Naval Research Logistics 52: 780-795, 2005

Coordinated scheduling of customer orders for quick response

Abstract: The scheduling problem addressed in this paper concerns a manufacturer who produces a variety of product types and operates in a make-to-order environment. Each customer order consists of known quantities of the different product types, and must be delivered as a single shipment. Periodically the manufacturer schedules the accumulated and unscheduled customer orders. Instances of this problem occur across industries in manufacturing as well as in service environments. In this paper we show that the problem of minimizing the weighted sum of customer order delivery times is unary NP-hard. We characterize the optimal schedule, solve several special cases of the problem, derive tight lower bounds, and propose several heuristic solutions. We report the results of a set of computational experiments to evaluate the lower bounding procedures and the heuristics, and to determine optimal solutions. © 2005 Wiley Periodicals, Inc. Naval Research Logistics 52: 493-512, 2005.

Manpower allocation with time windows and job‐teaming constraints

Abstract: In the Manpower Allocation Problem with Time Windows and Job-Teaming Constraints (MAPTWTC), we have a set of jobs located at various locations where each job requires a team of workers. Each job has a time window and a job duration, during which everyone on the team has to be present. The job requirement is satisfied if and only if the required composite team works for long enough duration within the job’s time window. The objective of the problem is find a schedule to minimize a weighted sum of the total number of workers, the total travelling distances of all workers and their total waiting time. Two main approaches are proposed in the paper which are shown to be able to obtain very good performance.

Production and Transport Logistics Scheduling with Two Transport Mode Choices

Abstract: This paper considers a new class of scheduling problems arising in logistics systems in which two different transportation modes are available at the stage of product delivery. The mode with the shorter transportation time charges a higher cost. Each job ordered by the customer is first processed in the manufacturing facility and then transported to the customer. There is a due date for each job to arrive to the customer. Our approach integrates the machine scheduling problem in the manufacturing stage with the transportation mode selection problem in the delivery stage to achieve the global maximum benefit. In addition to studying the NP-hard special case in which no tardy job is allowed, we consider in detail the problem when minimizing the sum of the total transportation cost and the total weighted tardiness cost is the objective. We provide a branch and bound algorithm with two different lower bounds. The effectiveness of the two lower bounds is discussed and compared. We also provide a mathematical model that is solvable by CPLEX. Computational results show that our branch and bound algorithm is more efficient than CPLEX. © 2005 Wiley Periodicals, Inc. Naval Research Logistics, 2005

Machine scheduling with pickup and delivery

Abstract: The coordination of production, supply, and distribution is an important issue in logistics and operations management. This paper develops and analyzes a single-machine scheduling model that incorporates the scheduling of jobs and the pickup and delivery arrangements of the materials and finished jobs. In this model, there is a capacitated pickup and delivery vehicle that travels between the machine and the storage area, and the objective is to minimize the makespan of the schedule. The problem is strongly NP-hard in general but is solvable in polynomial time when the job processing sequence is predetermined. An efficient heuristic is developed for the general problem. The effectiveness of the heuristic is studied both analytically and computationally. © 2005 Wiley Periodicals, Inc. Naval Research Logistics, 2005.

A concave‐cost production planning problem with remanufacturing options

Abstract: We focus on the concave-cost version of a production planning problem where a manufacturer can meet demand by either producing new items or by remanufacturing used items. Unprocessed used items are disposed. We show the NP-hardness of the problem even when all the costs are stationary. Utilizing the special structure of the extreme-point optimal solutions for the minimum concave-cost problem with a network flow type feasible region, we develop a polynomial-time heuristic for the problem. Our computational study indicates that the heuristic is a very efficient way to solve the problem as far as solution speed and quality are concerned. © 2005 Wiley Periodicals, Inc. Naval Research Logistics 52: 443- 458, 2005.

A decomposition algorithm applied to planning the interdiction of stochastic networks

Abstract: We describe the application of a decomposition based solution method to a class of network interdiction problems. The problem of maximizing the probability of sufficient disruption of the flow of information or goods in a network whose characteristics are not certain is shown to be solved effectively by applying a scenario decomposition method developed by Riis and Schultz [Comput Optim Appl 24 (2003), 267–287]. Computational results demonstrate the effectiveness of the algorithm and design decisions that result in speed improvements. © 2005 Wiley Periodicals, Inc. Naval Research Logistics, 2005.

An economic lot‐sizing problem with perishable inventory and economies of scale costs: Approximation solutions and worst case analysis

Abstract: The costs of many economic activities such as production, purchasing, distribution, and inventory exhibit economies of scale under which the average unit cost decreases as the total volume of the activity increases. In this paper, we consider an economic lot-sizing problem with general economies of scale cost functions. Our model is applicable to both nonperishable and perishable products. For perishable products, the deterioration rate and inventory carrying cost in each period depend on the age of the inventory. Realizing that the problem is NP-hard, we analyze the effectiveness of easily implementable policies. We show that the cost of the best Consecutive-Cover-Ordering (CCO) policy, which can be found in polynomial time, is guaranteed to be no more than (42 5)/7 1.52 times the optimal cost. In addition, if the ordering cost function does not change from period to period, the cost of the best CCO policy is no more than 1.5 times the optimal cost. © 2005 Wiley Periodicals, Inc. Naval Research Logistics 52: 536 -548, 2005.

On Parallel Machine Replacement Problems with General Replacement Cost Functions and Stochastic Deterioration

Abstract: The parallel machine replacement problem consists of finding a minimum cost replacement policy for a finite population of economically interdependent machines. In this paper, we formulate a stochastic version of the problem and analyze the structure of optimal policies under general classes of replacement cost functions. We prove that for problems with arbitrary cost functions, there can be optimal policies where a machine is replaced only if all machines in worse states are replaced (Worse Cluster Replacement Rule). We then show that, for problems with replacement cost functions exhibiting nonincreasing marginal costs, there are optimal policies such that, in any stage, machines in the same state are either all kept or all replaced (No-Splitting Rule). We also present an example that shows that economies of scale in replacement costs do not guarantee optimal policies that satisfy the No-Splitting Rule. These results lead to the fundamental insight that replacement decisions are driven by marginal costs, and not by economies of scale as suggested in the literature. Finally, we describe how the optimal policy structure, i.e., the No-Splitting and Worse Cluster Replacement Rules, can be used to reduce the computational effort required to obtain optimal replacement policies. © 2005 Wiley Periodicals, Inc. Naval Research Logistics 52: 409 - 419, 2005.

Basic Scheduling Problems with Raw Material Constraints

Abstract: One of the achievements of scheduling theory is its contribution to practical applications in industrial settings. In particular, taking finiteness of the available production capacity explicitly into account, has been a major improvement of standard practice. Availability of raw materials, however, which is another important constraint in practice, has been largely disregarded in scheduling theory. This paper considers basic models for scheduling problems in contemporary manufacturing settings where raw material availability is of critical importance. We explore single scheduling machine problems, mostly with unit or all equal processing times, and Lmax and Cmax objectives. We present polynomial time algorithms, complexity and approximation results, and computational experiments. © 2005 Wiley Periodicals, Inc. Naval Research Logistics 52: 527-535, 2005.

Single Machine Scheduling with a Restricted Rate-Modifying Activity*

Abstract: In this paper we consider the problem of scheduling a set of jobs on a single machine on which a rate-modifying activity may be performed. The rate-modifying activity is an activity that changes the production rate of the machine. So the processing time of a job is a variable, which depends on whether it is scheduled before or after the rate-modifying activity. We assume that the rate-modifying activity can take place only at certain predetermined time points, which is a constrained case of a similar problem discussed in the literature. The decisions under consideration are whether and when to schedule the rate-modifying activity, and how to sequence the jobs in order to minimize some objectives. We study the problems of minimizing makespan and total completion time. We first analyze the computational complexity of both problems for most of the possible versions. The analysis shows that the problems are NP-hard even for some special cases. Furthermore, for the NP-hard cases of the makespan problem, we present a pseudo-polynomial time optimal algorithm and a fully polynomial time approximation scheme. For the total completion time problem, we provide a pseudo-polynomial time optimal algorithm for the case with agreeable modifying rates. © 2005 Wiley Periodicals, Inc. Naval Research Logistics 52: 361-369, 2005.

Quantity discount pricing policies for heterogeneous retailers with price sensitive demand

Abstract: Although quantity discount policies have been extensively analyzed, they are not well understood when there are many different buyers. This is especially the case when buyers face price-sensitive demand. In this paper we study a supplier's optimal quantity discount policy for a group of independent and heterogeneous retailers, when each retailer faces a demand that is a decreasing function of its retail price. The problem is analyzed as a Stackelberg game whereby the supplier acts as the leader and buyers act as followers. We show that a common quantity discount policy that is designed according to buyers' individual cost and demand structures and their rational economic behavior is able to significantly stimulate demand, improve channel efficiency, and substantially increase profits for both the supplier and buyers. Furthermore, we show that the selection of all-units or incremental quantity discount policies has no effect on the benefits that can be obtained from quantity discounts. © 2005 Wiley Periodicals, Inc. Naval Research Logistics, 2005

Graph distance‐dependent labeling related to code assignment in computer networks

Abstract: For nonnegative integers d1, d2, and L(d1, d2)-labeling of a graph G, is a function f : V(G) {0, 1, 2, …} such that |f(u) − f(v)| ≥ di whenever the distance between u and v is i in G, for i = 1, 2. The L(d1, d2)-number of G, λ(G) is the smallest k such that there exists an L(d1, d2)-labeling with the largest label k. These labelings have an application to a computer code assignment problem. The task is to assign integer “control codes” to a network of computer stations with distance restrictions, which allow d1 ≤ d2. In this article, we will study the labelings with (d1, d2) ∈ {(0, 1), (1, 1), (1, 2)}. © 2004 Wiley Periodicals, Inc. Naval Research Logistics, 2005

Discrete stochastic optimization using variants of the stochastic ruler method

Abstract: We present two random search methods for solving discrete stochastic optimization problems. Both of these methods are variants of the stochastic ruler algorithm. They differ from our earlier modification of the stochastic ruler algorithm in that they use different approaches for estimating the optimal solution. Our new methods are guaranteed to converge almost surely to the set of global optimal solutions under mild conditions. We discuss under what conditions these new methods are expected to converge faster than the modified stochastic ruler algorithm. We also discuss how these methods can be used for solving discrete optimization problems when the values of the objective function are estimated using either transient or steady-state simulation. Finally, we present numerical results that compare the performance of our new methods with that of the modified stochastic ruler algorithm when applied to solve buffer allocation problems. © 2005 Wiley Periodicals, Inc. Naval Research Logistics, 2005.

Outsourcing warranty repairs: Dynamic allocation

Abstract: In this paper we consider the problem of minimizing the costs of outsourcing warranty repairs when failed items are dynamically routed to one of several service vendors. In our model, the manufacturer incurs a repair cost each time an item needs repair and also incurs a goodwill cost while an item is awaiting and undergoing repair. For a large manufacturer with annual warranty costs in the tens of millions of dollars, even a small relative cost reduction from the use of dynamic (rather than static) allocation may be practically significant. However, due to the size of the state space, the resulting dynamic programming problem is not exactly solvable in practice. Furthermore, standard routing heuristics, such as join-the-shortest-queue, are simply not good enough to identify potential cost savings of any significance. We use two different approaches to develop effective, simply structured index policies for the dynamic allocation problem. The first uses dynamic programming policy improvement while the second deploys Whittle's proposal for restless bandits. The closed form indices concerned are new and the policies sufficiently close to optimal to provide cost savings over static allocation. All results of this paper are demonstrated using a simulation study. © 2005 Wiley Periodicals, Inc. Naval Research Logistics, 2005

On the median residual lifetime and its aging properties: A characterization theorem and applications

Abstract: This paper is devoted to study several aspects of the median residual life function (MERLF). In reliability studies, it is well known that, although the MERLF have several advantages over the mean residual life function (MRLF), the MRLF has the good property of uniquely determine a life distribution whereas either the median residual life function (MERLF) or an α-percentile residual life do not have such good property. We shall give a characterization result where knowledge of both the MERLF and the survival function on an interval does uniquely determine the distribution. Moreover, in order to apply this characterization in practical situations, we propose a method to estimate the necessary information of the survival function. Relationships between analytical properties of the survival function and its associated MERLF are also obtained. Bryson and Siddiqui [J Am Statist Assoc 64 (1969), 1472–1483] proved relationships among seven criteria for aging, out of which two contained the MRLF (decreasing MRLF and net decreasing MRLF). In this paper, we prove that the same pattern of relationships holds if the MRLF is replaced by the MERLF. We also examine the aging criteria corresponding to an increasing MERLF and show that there is no relation between the behavior (increasing or decreasing) of the MERLF and of the MRLF. © 2005 Wiley Periodicals, Inc. Naval Research Logistics, 2005

Non‐greedy heuristics and augmented neural networks for the open‐shop scheduling problem

Abstract: In this paper we propose some non-greedy heuristics and develop an Augmented-Neural-Network (AugNN) formulation for solving the classical open-shop scheduling problem (OSSP). AugNN is a neural network based meta-heuristic approach that allows integration of domain-specific knowledge. The OSSP is framed as a neural network with multiple layers of jobs and machines. Input, output and activation functions are designed to enforce the problem constraints and embed known heuristics to generate a good feasible solution fast. Suitable learning strategies are applied to obtain better neighborhood solutions iteratively. The new heuristics and the AugNN formulation are tested on several benchmark problem instances in the literature and on some new problem instances generated in this study. The results are very competitive with other meta-heuristic approaches, both in terms of solution quality and computational times. © 2005 Wiley Periodicals, Inc. Naval Research Logistics, 2005.

Modeling and analyzing multiple station baggage screening security system performance

Abstract: In the aftermath of the tragic events of 11 September 2001, numerous changes have been made to aviation security policy and operations throughout the nation's airports. The allocation and utilization of checked baggage screening devices is a critical component in aviation security systems. This paper formulates problems that model multiple sets of flights originating from multiple stations (e.g., airports, terminals), where the objective is to optimize a baggage screening performance measure subject to a finite amount of resources. These measures include uncovered flight segments (UFS) and uncovered passenger segments (UPS). Three types of multiple station security problems are identified and their computational complexity is established. The problems are illustrated on two examples that use data extracted from the Official Airline Guide. The examples indicate that the problems can provide widely varying solutions based on the type of performance measure used and the restrictions imposed by the security device allocations. Moreover, the examples suggest that the allocations based on the UFS measure also provide reasonable solutions with respect to the UPS measure; however, the reverse may not be the case. This suggests that the UFS measure may provide more robust screening device allocations. © 2004 Wiley Periodicals, Inc. Naval Research Logistics, 2005.

The continuous‐time single‐sourcing problem with capacity expansion opportunities

Abstract: This paper develops a new model for allocating demand from retailers (or customers) to a set of production/storage facilities. A producer manufactures a product in multiple production facilities, and faces demand from a set of retailers. The objective is to decide which of the production facilities should satisfy each retailer's demand, in order minimize total production, inventory holding, and assignment costs (where the latter may include, for instance, variable production costs and transportation costs). Demand occurs continuously in time at a deterministic rate at each retailer, while each production facility faces fixed-charge production costs and linear holding costs. We first consider an uncapacitated model, which we generalize to allow for production or storage capacities. We then explore situations with capacity expansion opportunities. Our solution approach employs a column generation procedure, as well as greedy and local improvement heuristic approaches. A broad class of randomly generated test problems demonstrates that these heuristics find high quality solutions for this large-scale cross-facility planning problem using a modest amount of computation time. © 2005 Wiley Periodicals, Inc. Naval Research Logistics, 2005.

A logistics scheduling model: Inventory cost reduction by batching

Abstract: Logistics scheduling refers to the problems where the decisions of job scheduling and transportation are integrated in a single framework. In this paper, we discuss a logistics scheduling model where the raw material is delivered to the shop in batches. By making the batching and scheduling decisions simultaneously, the total inventory and batch setup cost can be reduced. We study different models on this issue, present complexity analysis and optimal algorithms, and conduct computational experiments. Some managerial insights are observed. © 2005 Wiley Periodicals, Inc. Naval Research Logistics, 2005.

Markets for surplus components with a strategic supplier

Abstract: We study markets for surplus components, which allow manufacturers with excess component inventory to sell to firms with a shortage. Recent developments in internet commerce have the potential to greatly increase the efficiency of such markets. We develop a one-period model in which a monopolist supplier sells to a number of independent manufacturers who are uncertain about demand for final goods. After uncertainty is resolved, the manufacturers have the opportunity to trade. Because uncertainty is over demand functions, the model allows us to endogenize both the price of final goods and the price of components in wholesale and surplus markets. We derive conditions on demand uncertainty that determine whether a surplus market will increase or decrease supplier profits. Increased costs of transacting on the surplus market may benefit manufacturers, because of the impact of these costs on the supplier's pricing power. The surplus market can decrease overall efficiency of the supply chain, since the benefit of better allocation of components may be outweighed by an increased double-marginalization effect. © 2005 Wiley Periodicals, Inc. Naval Research Logistics, 2005.