The Impact of Early Order Commitment on the Performance of a Simple Supply Chain

Authors

Xiande Zhao, Department of Decision Sciences and Managerial Economics, Faulty of Business Administration, The Chinese University of Hong Kong, Shatin, N.T., Hong Kong, ChinaFollow
Jinxing Xie, Department of Mathematical Sciences, Tsinghua University, Beijing, ChinaFollow
Jerry C. Wei, Mendoza College of Business, The University of Notre Dame, IN, USAFollow

Document Type

Article

Abstract

An example of supply chain coordination is early order commitment, wherein a retailer commits to purchase a fixed-order quantity and delivery time from a manufacturer before the real need takes place. In this paper, an analytical model is developed that quantifies the impact of early order commitment on the performance of a simple two-level supply chain consisting of a single manufacturer and a single retailer. The model reveals that the effect of early order commitment depends on a lot of factors such as the cost structure of the supply chain, the lengths of manufacturing and delivery lead times, and the correlation of the demand over time. This model can be used to evaluate the benefit of early order commitment, to determine the optimal early commitment periods of the supply chain, and to estimate the maximum incentives the manufacturer can provide to encourage the retailer to commit its orders in advance.

Recommended Citation

Zhao, Xiande; Xie, Jinxing; and Wei, Jerry C., "The Impact of Early Order Commitment on the Performance of a Simple Supply Chain" (2002). ICEB 2002 Proceedings (Taipei, Taiwan). 60.
https://aisel.aisnet.org/iceb2002/60