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Coordination of co-investments in supply chain infrastructure

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Abstract

This paper considers co-investments in a supply chain infrastructure using an inter-temporal investment model. We assume that the supply chain firms’ capital consists essentially of an investment in the supply chain’s infrastructure. As a result, firms’ policies consist in selecting both an optimal level of employment and the level of co-investment in the supply chain infrastructure. Recent papers by Kogan and Tapiero (Eur J Oper Res 2009; Supply chain games: Operations management and risk valuation. Springer, Boston 2007) have presented open-loop and feedback solutions for non-cooperating firms and have shown that these solutions differ from a unique system-wide optimal solution, which maximizes the overall supply chain profit. To overcome this problem and thereby improve the supply chain performance, this paper suggests a coordination approach. Such an approach is consistent with a recent practice which consists in the creation of a supply chain shared capital (or joint funding of selected activities) with a temporal reward (or penalties) offered to non-cooperating firms for each dollar investment they make. In addition, this paper provides a closed form expression for the time sensitive rewards function expressed in terms of the system parameters. We show that when these rewards are offered, the Nash co-investment equilibrium is equal to the system-wide optimal solution.

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Authors and Affiliations

  1. Department of Management, Bar Ilan University, Ramat Gan, Israel

    Konstantin Kogan

  2. Department of Finance and Risk Engineering, Research Center for Risk Engineering, The Polytechnic Institute of New York University, 6 Metro Tech Center, Brooklyn, NY, 11021, USA

    Charles S. Tapiero

Authors
  1. Konstantin Kogan
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  2. Charles S. Tapiero
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Correspondence to Konstantin Kogan.

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Kogan, K., Tapiero, C.S. Coordination of co-investments in supply chain infrastructure. J Intell Manuf 23, 2471–2475 (2012). https://doi.org/10.1007/s10845-011-0513-9

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  • DOI: https://doi.org/10.1007/s10845-011-0513-9

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