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SOURCING STRATEGIES in a SUPPLY CHAIN by Gerard Joseph Burke Jr

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SOURCING STRATEGIES in a SUPPLY CHAIN by Gerard Joseph Burke Jr SOURCING STRATEGIES IN A SUPPLY CHAIN By GERARD JOSEPH BURKE JR. A DISSERTATION PRESENTED TO THE GRADUATE SCHOOL OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY UNIVERSITY OF FLORIDA 2005 Copyright 2005 by Gerard Joseph Burke Jr. This work is dedicated to my family, and especially my wife, Amy, for your love and support. ACKNOWLEDGMENTS The hard work and dedication required by me to create this dissertation were made possible by the personal and practical support of my family, friends, committee members and other members of the Decision and Information Sciences Department. I wish to express my gratitude by specifically acknowledging each group of supporters. I wish to thank God; my parents, Jerry and Carlyn; my wife, Amy; my chil- dren, Maddie, Marley, Ella and James; my grandfather, Frank Burke (whose support is priceless); and my mother-in-law, Deb Crenshaw for their love, inspira- tion, and support. I also thank my Hoosier family, Hank and Betty Tallman, Jim and Joni Ping, Jeannie Meenach, and Drew and Pam Kissel for their unwavering encouragement, love and much needed breaks from my studious endeavors. Although this next group for gratitude is legally not considered family, they are closer to me than friendship describes. I wish to thank Lou and Sandy Paganini, and Ed and Atwood Brewton for their support, faith, and perspective. Also, many thanks go to the Kempers and Nelsons for their friendship. My doctoral studies were greatly enriched by the comradery of my fellow doc- toral students Mark Cecchini, Selcuk Colak, Enes Eryarsoy, Ling He, Jason Dean, Yuwen Chen, Christy Zhang, Fidan Boylu, and Michelle Hanna. Additionally, I would like to thank Pat Brawner, Shawn Lee, and Cindy Nantz for assisting me throughout this tribulation. My capability to complete this dissertation was developed in large part by the seminars and coursework taught by members of my dissertation committee. I wish to thank Janice Carrillo, Selcuk Erenguc, Anand Paul, and Joe Geunes for their iv instruction and service on my dissertation committee during my doctoral studies. I also wish to thank Janice Carrillo for candidly sharing her experiences in the academic profession. Finally, I wish to thank Professor Asoo Vakharia, my advisor and committee chair, for his expert guidance, timely responses to the drafts of each chapter of my dissertation, and genuine interest in my personal and professional well-being. v TABLE OF CONTENTS page ACKNOWLEDGMENTS ............................. iv LIST OF TABLES ................................. ix ABSTRACT .................................... xi CHAPTER 1 INTRODUCTION .............................. 1 1.1 Supply Chain Management-An Overview .............. 1 1.2 Strategic Issues in SCM ........................ 3 1.2.1 Product Strategy ....................... 4 1.2.2 Network Design ........................ 5 1.3 Operational Issues in SCM ...................... 7 1.3.1 Transportation ......................... 7 1.3.2 Transformation ........................ 8 1.3.3 Information Sharing ...................... 9 1.4 Focus of this Research: Strategic Sourcing ............. 10 1.5 Organization of this Dissertation ................... 14 1.6 Statement of Contribution ...................... 14 2 LITERATURE REVIEW .......................... 16 2.1 Overview ................................ 16 2.2 Strategic Evolution of Sourcing ................... 16 2.3 Buyer-Supplier Relationships ..................... 17 2.4 Strategic Sourcing ........................... 18 2.4.1 Qualification Criteria ..................... 18 2.4.2 Selection and Allocation ................... 19 3 STRATEGIC SOURCING DECISIONS WITH STOCHASTIC SUP- PLIER RELIABILITY ........................... 27 3.1 Introduction .............................. 27 3.2 Sourcing Model ............................ 28 3.3 Model Development .......................... 30 3.4 Analysis ................................ 30 3.4.1 Heterogeneous Suppliers ................... 31 3.4.2 Heterogeneous Cost Suppliers ................ 35 vi 3.4.3 Heterogeneous Reliability Suppliers ............. 36 3.4.4 Homogeneous Suppliers .................... 37 3.5 Numerical Analysis .......................... 39 3.5.1 Experimental Design ..................... 39 3.5.2 Results ............................. 40 3.6 Conclusions .............................. 44 4 IMPACT OF SUPPLIER PRICING SCHEMES AND CAPACITY ON SOURCING STRATEGIES ........................ 48 4.1 Introduction .............................. 48 4.2 Sourcing Model ............................ 50 4.2.1 Preliminaries .......................... 50 4.2.2 Supplier Pricing Schemes and Capacity ........... 51 4.3 Analysis and Insights ......................... 52 4.3.1 Constant Price ......................... 52 4.3.2 Linear Discount Price ..................... 53 4.3.3 Incremental Units Discount Price .............. 56 4.3.4 All Units Discount Price ................... 59 4.3.5 Summary of Insights from Analysis ............. 61 4.4 Application .............................. 62 4.5 Optimal Algorithm for Incremental Quantity Discounted Sourcing 64 4.5.1 Algorithm Description ..................... 65 p 4.5.2 Computation and Validity of LB and UBf ......... 66 4.5.3 The Branching Process .................... 67 4.5.4 Formal Statement of the Algorithm ............. 67 4.6 Conclusions .............................. 68 5 STRATEGIC SOURCING WITH DIVERSIFICATION CONSIDERA- TION .................................... 70 5.1 Introduction .............................. 70 5.2 Integrated Selection/Allocation Model ............... 71 5.2.1 Preliminaries .......................... 71 5.2.2 Model Development ...................... 75 5.3 Analysis ................................ 77 5.3.1 No Diversification Benefit ................... 77 5.3.2 Diversification Benefit ..................... 81 5.4 Model Extensions ........................... 83 5.5 Numerical Analysis .......................... 86 5.5.1 Experimental Design ..................... 86 5.5.2 Results ............................. 87 5.6 Conclusions and Implications ..................... 91 vii 6 SUMMARY .................................. 94 6.1 Key Results and Directions for Future Research from Chapter 3 . 94 6.2 Key Results and Directions for Future Research from Chapter 4 . 96 6.3 Key Results and Directions for Future Research from Chapter 5 . 98 APPENDIX ..................................... 100 A PROOFS FOR CHAPTER 3 ........................ 100 A.1 Proof of Corollary 3.1 ......................... 100 A.2 Proof of Theorem 3.1 ......................... 101 A.3 Proof of Corollary 3.2 ......................... 102 A.4 Proof for Corollary 3.3 ........................ 102 A.5 Proof of Corollary 3.4 ......................... 102 A.6 Proof of Corollary 3.5 ......................... 103 A.7 Proof of Corollary 3.6 ......................... 103 A.8 Proof of Theorem 3.2 ......................... 104 A.9 Proof of Theorem 3.3 ......................... 104 A.10 Proof of Theorem 3.4 ......................... 104 A.11 Proof of Corollary 3.7 ......................... 104 B PROOFS FOR CHAPTER 4 ........................ 106 B.1 Proof of Theorem 4.1 ......................... 106 B.2 Proof of Result 4.1 .......................... 107 B.3 Linear Discount Pricing Test Problems Data ............ 109 B.4 Incremental and All-Unit Discount Pricing Test Problems Data .. 112 C PROOFS FOR CHAPTER 5 ........................ 142 C.1 Proof of Theorem 5.1 ......................... 142 C.2 Proof of Theorem 5.2 ......................... 144 C.3 Proof of Theorem 5.5 ......................... 146 REFERENCES ................................... 148 BIOGRAPHICAL SKETCH ............................ 154 viii LIST OF TABLES Table page 3–1 Model Notation .............................. 29 3–2 Description of Numerical Examples .................... 40 3–3 Results for Numerical Examples ..................... 41 4–1 Linear Discount Heuristic Performance .................. 56 4–2 Incremental Units Discount Heuristic Performance ........... 58 4–3 All-Units Discount Heuristic Performance ................ 61 4–4 Product A Bid Information Data ..................... 62 4–5 Product B Bid Information Data ..................... 63 4–6 CPO Product A Solutions Comparison .................. 64 4–7 CPO Product B Solutions Comparison .................. 64 4–8 Number of Subproblems Solved for each Test Problem ......... 68 5–1 Sensitivity Analysis of the Key Parameters ............... 88 5–2 Impact of Minimum Order Quantity on the Sourcing Strategy ..... 89 5–3 Interactions between Minimum Order Quantities and Reliabilities ... 90 5–4 Parameter Values for Ranked Supplier Characteristics ......... 91 5–5 Selected Results for Capacity Adjusted Model A ............ 91 B–1 Linear Discount Pricing Test Problems Data (1-12) ........... 109 B–2 Linear Discount Pricing Test Problems Data (13-24) .......... 110 B–3 Linear Discount Pricing Test Problems Data (25-30) .......... 111 B–4 Incremental and All-Units Pricing Test Problems Data (1-3) ...... 112 B–5 Incremental and All-Units Pricing Test Problems Data (4-6) ...... 115 B–6 Incremental and All-Units Pricing Test Problems Data (7-9) ...... 118 B–7 Incremental and All-Units Pricing Test Problems Data (10-12) .... 121 ix B–8 Incremental and All-Units Pricing Test Problems Data (13-15) .... 124 B–9 Incremental and All-Units Pricing Test Problems Data (16-18) .... 127 B–10Incremental and All-Units Pricing Test Problems Data (19-21) .... 130 B–11Incremental and All-Units
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