Auctioning and Contracting in Supply Chains and Distributed
Manufacturing: Opportunities For Research
Department of Industrial Engineering, Texas A&M University
Submitted in Partial Fulfillment of the Requirements of the course INEN 685: Directed Study
The shift in industry from traditional business to E-Business and the expanding importance of supply chain integration along
with emerging systems of manufacturing like, distributed production, has created challenges to researchers. Despite the extensive
conceptual literature in these areas, very few researchers have attempted a more rigorous approach of integrating the two at
quantitative and analytical modeling level and addressing issues like, dynamic pricing strategies, auctioning and coordination
mechanisms. This paper presents a comprehensive study of the recent conceptual literature and is an attempt at investigating
potential research areas.
Keywords: Supply Chain Management; Contracting; Supplier-Buyer Relationship; Integrated Production-Distribution Systems; E-Commerce;
Distributed Production Systems; Auctions; Coordination Mechanism; Game Theory; Revenue Management
In recent years, there have been many an opportunity to go beyond the lose-lose nature of
conceptual and technological innovations that have single issue price wars by determining sellers‟ and
drastically changed the business dynamics. buyers‟ preferences across multiple issue and
Strategic implementations of these key concepts encouraging negotiations, thereby creating
determine the success or failure of modern possible gains for all parties . In this
businesses. This paper seeks to provide a review of environment, not only the vertical interactions
current research in the areas of auctioning and between supplier and buyer pairs need to be
contracting in supply chain and distributed considered, but also the horizontal interactions
production systems and attempts to consolidate among suppliers (or buyers) have increasing
current learning, identify possible gaps, and importance. Auctions are a fundamental
investigate potential areas of future research. mechanism for automating negotiations, serving as
Supply chain management has become a a price-determination mechanism and accounting
subject of increasing interest in recent years, to for an enormous volume of transactions on the
both academics and the business managers, who Internet. Jin and Wu  have shown that auction
seek to make it not just a system of achieving cost could also serve as a coordination mechanism and
reduction and profit improvement, but also a its form could have a significant impact on the
competitive advantage. The supply chain dynamics of supplier-buyer interaction and
encompasses every effort involved in producing contracting.
and delivering a final product or service, from the Another interesting concept is that of
supplier's supplier to the customer's customer. Distributed Manufacturing which, along with other
Supply Chain Management (SCM) includes similar terms, such as Holonic production (a
managing supply and demand, sourcing raw holarchy which integrates the entire range of
materials and parts, manufacturing and assembly, manufacturing activities from order booking
warehousing and inventory tracking, order entry through design, production and marketing to
and order management, distribution across all realize the agile manufacturing enterprise, with
channels, and delivery to the customer . It holarchy being a system of holons which can co-
involves coordinating and integrating these flows, operate to achieve a goal or objective), Virtual
both within and among companies, while E- Manufacturing (a very dynamic and restructuring
Commerce provides the operational backbone. organization, where supplier and supplied are
The electronic revolution has created a chaotic undifferentiated and no dominant position exists),
nature of price wars because of the zero-sum Networked Manufacturing and Extended
nature of the channel. The technology has created Enterprise (entities develop more durable, coupled
and mutual intervening relation, sharing work, in terms of presenting scope for further
technological and strategic efforts. Yet, supplied research.
entity maintains a dominant position over
suppliers), have gained a lot of interest. The most 2. Supply Chain Modeling and Analysis
significant characteristic of these new
organizational structures is that they recommend A supply chain is defined as an integrated
the distribution of the enterprise on manufacturing system wherein a number of business entities work
and logistic units with a certain degree of together to acquire raw materials, convert these
autonomy. The assignment of projects in a raw materials into specified final products, and
distributed production system is based on deliver these final products to retailers. Its need is
auctioning where multiple business units bid for the result of a number of changes in the
multiple projects. The presence of such a complex manufacturing environment, including the rising
system within the supply chain further complicates costs of manufacturing, the shrinking resources of
the pricing strategies of the system. Since the manufacturing bases, shortened product life cycles,
individual stakeholders; the quasi-autonomous the leveling of playing field within manufacturing,
manufacturing units, the suppliers, the buyers; and the globalization of market economies.
encounter different sets of decision constraints Recently, there has been increasing attention
associated with their individual units, it could placed on the performance, design, and analysis of
result in sub-optimization of the outcomes, unless the supply chain as a whole. There are basically
a coordination scheme is established to ensure four modeling approaches, as per the inputs and
system-efficient decisions. Not much research has the objectives, viz., deterministic models,
been undertaken to address this issue, most stochastic models, economic models, and
importantly the interaction between multiple simulation models.
suppliers and multiple buyers in a networked Beamon  has comprehensively reviewed
system where simultaneous auctioning takes place seminal research works in the above-mentioned
with stochastic demands. modeling categories, encompassing all the areas of
In this paper, the concern is not so much with supply chain. Most notably the works of Williams
advanced theory per se, but in investigating the [5, 6], Ishii et al , Cohen and Lee [8, 9], Cohen
gaps in the present research, which may be helpful and Moon , Newhart et al  Arntzen et al
in identifying possible areas of future research.  Voudouris , and Camm et al  in the
The paper is organized in eight sections. Section 1 area of deterministic modeling; Cohen and Lee
is the introduction. In section 2, modeling and , Svoronos and Zipkin , Lee and Billington
analysis of supply chains are discussed and the , Lee et al [17, 24], Pyke and Cohen [18, 19],
framework and the methodology used for Tzafestas and Kapsiotis , Towill and Del
integrating production-distribution systems have Vecchio , Lee and Feitzinger , and Altiok
been reviewed. Section 3 considers the body of and Ranjan  in the area of stochastic modeling;
literature associated with buyer-supplier Christy and Grout , and Zipkin  in the area
relationships and builds on supply chain of economic modeling; and Towill et al [27, 28,
contracting. In section 4, auctioning and 29], in the area of simulation modeling.
contracting in supply chains has been examined, Beamon  has also outlined qualitative and
underlining various methodologies and concepts of quantitative performance measures to determine
auctions presented in literature. Section 5 the efficiency and effectiveness of an existing
concentrates on coordination mechanisms in system and compare competing alternative
supply chains and section 6 discusses the systems. The issues identified as receiving
Distributed Production Systems and their increasing attention in supply chain modeling are
integration in the supply chain. In section 7, the product postponement, global vs. single-nation
feasibility of using Revenue Management pricing supply chain modeling, and demand distortion and
strategy in integrating distributed production variance amplification. Product postponement is
systems in supply chains and developing the practice of delaying one or more operations to
coordination mechanism via auctioning and a later point in the supply chain, thus delaying the
contracting is explored. Section 8 presents a point of product differentiation. Global Supply
summary and the conclusions drawn from this Chains are supply chains that operate in multiple
nations and has added considerations of export
regulations, duty rates and exchange rates. chain optimization; integration with different types
Demand distortion is the phenomenon in which of manufacturing systems ; and optimizing
“orders to the supplier have larger variance than information flow via software agents. Some other
sales to the buyer” and variance amplification specialized areas of research are in inter/intra
occurs when the distortion of the demand organizational coordination of supply chain and
“propagates” in amplified form . These determination of the effects of forecast error
phenomena are collectively known as “Bullwhip volatility ; clustering in supply chain networks
Effect” or “Whiplash Effect” and are common in [39, 40]; dynamics of using two suppliers, one
supply chain systems, for more information on reliable, the other unreliable ; multi-objective
this, refer Lee et al  and Metters . decision analysis incorporating production,
Beamon  further suggests potential areas of delivery, and demand uncertainty to model an
future research to encompass, (1) evaluation and integrated multi-objective supply chain model,
development of supply chain performance providing a multi-objective performance vector for
measures; (2) development of models and the entire supply chain network and aiding in the
procedures to relate decision variables to the design of efficient, effective, and flexible supply
performance measures; (3) considerations of issues chain systems and evaluation of competing supply
affecting supply chain modeling, and (4) chain networks ; using MRP and NPV models
classification of supply chain systems to allow to investigate the results of customers‟ behavior
development of heuristics to aid in the design and when the supply units compete for customers and
analysis of manufacturing supply chains. Some of are exposed to an uncertain demand resulting in a
the directions suggested for future research by possible shortage of goods, assuming the total
Thomas and Griffin  are: (1) knowledge of all market are to be constant for both players .
value-added activities in the supply chain for Apart from these, from both the managerial
coordinated modeling; (2) long supply chains and operational perspective, there has been a
inhibit a firm‟s ability to respond quickly to considerable amount of research work being
consumer requirements, especially if the products undertaken in the area of cooperative supply
life cycles are very short hence life cycle chains and buyer-supplier relationship.
constraints and costs need to be considered in
supply chain models; (3) determination and design 3. Buyer-Supplier Relationship
of interface points between stages of the supply
chain; (4) addressing supply chain coordination at A Harvard Business School study concluded
an operational level; (5) the environmental impact that a key reason for the decline of US
of supply chain activities, models that could be competitiveness in the international marketplaces
used to evaluate how green the manufacturing and has originated from investing less in intangible
distribution of a new product is. benefits such as supplier relations .
Traditionally, attempts to improve upon the Recognition of strategic buyer-supplier
operations in a supply chain have focused on partnerships as a fundamental driver for success in
reducing the costs associated with individual present economic scenario and its importance in
activities. Currently, attention has been paid to the promoting desired economic behaviors from
way in which the activities of one link of the suppliers and customers has resulted in extensive
supply chain affect the costs of another, and research in this area. Since both parties share risks
opportunities are now being recognized that and resources, these relationships play an
involve coordinating activities across the important role in managing the uncertainties of the
boundaries of firms in a supply chain. This is commercial exchange process and reducing the
another potential are of research where much cost of conducting business activities.
needs to be done in terms of identifying and Most of the research on partnership has
quantifying the specific benefits. focused on the procedures involved in identifying
Further reviewing the existing body of and selecting a suitable partner, delineating the
research in supply chain modeling, the recent trend risks and benefits involved in creating such a
seems to be extensively focused in the areas of, relationship, and chronicled the various factors and
integrated production-distribution systems [31-36] characteristics of successful cooperative exchanges
focusing on optimizing flows across each [42-49]. What is missing from this body of
interacting business component for total supply knowledge is a full and complete understanding of
coordination mechanisms involved in cooperative support or hinder efficient supply chain
buyer-supplier relationships and how they are relationships.
effectively managed over time. The inter- Apart from the wide range of case studies
organizational relationships are dynamic in nature undertaken on success and failure of the
and are becoming very complex with time. The relationships, some other areas of buyer-supplier
existing models of real-life cooperative buyer- relationship that have been explored are: Carter et
supplier relationship governance are inadequate at al‟s  research on integrating TQM though the
describing its nuances and unique characteristics. supply chain via buyer-supplier relationship;
Patterson et al  propose an alternative Hsuan‟s  investigation on the impact of
theoretical framework, which combines and supplier-buyer relationships on modularization of
extends the earlier work on organizational culture new product development; Shin et al‟s  study
by Ouchi  and transaction cost economics by on the impact of supply management orientation
Williamson  and others. (SMO) on the supplier‟s operational performance
The transaction cost economics approach is and buyers‟ competitive priorities, supporting the
based on the premise that the existence of different conclusion that an improvement in the SMO
organizational forms, whether they are markets, improves both the suppliers‟ and buyers‟
hierarchies, or clans, is primarily determined by performance, which is a win-win situation for
how efficiently each form can mediate exchange supply chain; Hult et al‟s  examination of the
transactions between parties . The theory has effects of transformational and transactional
been proposed to explain how firms exchange leadership commitment in the supplier-buyer-user
resources and information with each other and supply chain; and Naude and Buttle‟s 
could be used to explain why various assessment of the quality of buyer-supplier
organizational relationships form and under what relations within business-to-business markets.
conditions each type may perform best. The The recent work of Serel et al  examining
concepts emphasizes a lot on the ability of the the sourcing decisions of a firm in the presence of
transacting parties to adapt to environmental a capacity reservation contract that this firm makes
uncertainty and additional insights can be gained with its long-term supplier in addition to the spot
by investigating literature on organizational market alternative has given way to another
development regarding existing organizational potential research area. The contract is considered
forms. as a vehicle for establishing a stronger buyer-
Patterson et al  extend these theories from supplier relationship and entails delivery of any
their original, internally focused perspective desired portion of a reserved fixed capacity in
regarding organizational culture and intra- exchange for a guaranteed payment by the buyer.
organizational relations, to include cooperative The authors suggest various research extensions.
external relationships between buyers and A game-theoretic analysis based on risk
suppliers. This paradigm-shift could help expand preferences and bargaining powers of the parties
the line of research needed for understanding both could provide further insight into the mechanism
the network context in which these relationships of negotiations between the buyer and the supplier.
thrive and how those cohesive inter-organizational It is also possible to generalize the proposed
relationships grow and evolve over time. They also framework to the case when the buyer contracts
propose that the future research should strive to with more than one long-term supplier, here the
empirically test the applications of transaction cost solution would depend on the order in which
analysis (TCA) theory specifically to parties make their decisions. Furthermore, in
transcendental and other types of buyer-supplier addition to price-based competition among the
relationships. An effective longitudinal study of suppliers, the differences between quality and
these complex and highly dynamic inter- reliability of deliveries from the short and long-
organizational relationships offer great potential term suppliers could be incorporated into the
for development of theory, helping emerging proposed model. Another possibility of further
business practices in buyer-supplier relationships investigations could be the problem of allocating a
. This could further be studied in terms of supplier‟s production capacity among multiple
contracting and economic alliances to answer buyers within a capacity reservation framework
whether long-term formal contract arrangements .
Tang et al  have explored the interactive Much of the literature on auctions is devoted to the
nature of the buyer-supplier relationship in E- study of properties of various types of auctions and
Commerce environment. They have proposed a their mechanisms. Recently, there has been a shift
conceptual model to demonstrate the rationale of towards analyzing the existence questions, which
the buyer-supplier interaction with the intervention arise naturally in the general auction environments.
of an Information Service Provider (ISP), helping Page  provides a unified approach to the
in creating a direct buyer-supplier link with the problems of existence of optimal auctions for a
associated advantages of cost reduction, faster variety of auction environments by constructing a
delivery, quick response and better service. Stackelberg revelation game, which is systemically
With the advent of Electronic Marketplaces, specialized to cover single and multiple unit
the business dynamics have changed and gave the auctions with risk neutral and risk-averse sellers/
buyer-supplier relationship a new dimension. buyers and for contract auctions with moral hazard
Extensive research work is being undertaken to and adverse selection. This paper‟s main
explore the coordination of buyers and suppliers in contribution to the body of knowledge is that, it
the electronic environment where the negotiations shows that the existence of optimal Bayesian
are efficiently resolved by auctions – popular, auction mechanisms in a wide variety of auction
distributed and autonomy-preserving ways of environments follows from the existence of an
allocating items among multiple agents that are optimal Bayesian revelation mechanism for a
relatively efficient both in terms of process and particular Stackelberg revelation game. Monderer
outcome . and Tennenholtz‟  study on optimal auctions
addresses several basic problems inspired by the
4. Auctioning in Supply Chains adaptation of economic mechanisms to
computational and artificial environments, such as
The buyer-seller interaction consists of three the Internet.
distinct steps; (1) potential buyers and sellers find Auctions have already begun to play an
one other, (2) they negotiate the terms of the important role in E-Commerce. As automation of
exchange, (3) and execute the transaction. online negotiations become more prevalent,
Business-to-Business and Business-to-Customer researchers would continue to introduce innovative
electronic marketplaces have automated these auction mechanisms to cater to the needs of the
steps. Auctions account for an enormous volume businesses. Teich et al  propose several
of transaction on the Internet and are a multiple-issue auction and market algorithms and
fundamental mechanism for automating price heuristics for web environment, to match
negotiations. The Internet exhibits forms of businesses to businesses and consumers, based on
interactions, which are not captured by current dovetailing underlying interests and preferences
studies and theories in Economics. and show that such dovetailed matches help
The new economic mechanism consists of one stabilize markets and make them more efficient.
or many buyers and one or many sellers. One Wurman et al  consider a general family of
buyer and one seller defines a traditional auction mechanisms that admit multiple buyers
negotiation, which may take place face-to-face or and sellers, and determine market-clearing prices.
electronically. One seller and many buyers define They analyze the economic incentives facing
an auction, which may be conducted online. Many participants in such auctions and demonstrate that,
sellers and one buyer define a reverse auction, like under some conditions, it is possible to induce
government auctions. Many sellers and many truthful revelation of values by buyers or sellers,
buyers define a market or a double auction, which not both, and for single, not multi-unit, bids.
may be electronic . The highly distributed LaGrangian relaxation (LR) is used as an
nature of the Internet, the relatively easy access to auction method for bidding in a deregulated
trades carried out in remote locations, and the environment. It is a power-pool type auction that
ability of defining various types on Internet trades formulates the auction problem as Unit
by individual users, lead to new kind of settings for Commitment (UC) problem and uses LR to find
which new theories should be developed and the solution. Identical units can prevent LR from
evaluated . finding the optimal solution when only one of the
The part of economic theory most noted for its units should be committed. If many units are
contribution to the auction design is Game Theory. similar, LR may have trouble selecting some
subset of them for the optimal solution. A unique exchanges, especially corporate and government
feasible solution may not thus be found. This leads procurement auctions.
to inequity among the units not selected and may In procurement auctions with a fixed number
result in less revenue for one or more competitors. of bidders, there is a tradeoff between cost
Dekrajangpetch et al  focus on how to change efficiency and rent extraction. An optimal
unit data to obtain an advantage while using LR as mechanism, therefore, entails distortions of effort
an auction method. The authors suggest alternative . If potential suppliers must sink an entry
strategies based on associated problems with investment before they can participate in the
selection by unit commitment and subsequent auction, then decreasing the firms‟ rent may imply
dispatch by economics. The auction scenario reduced entry. Kjerstad and Vagstad  show
considered is one-sided and the objective function that if potential bidders are uninformed before
is cost minimization. The suggested strategies entry, commitment to a plain, non-distortive
could be applied to both uniform pricing, every auction is optimal. In contrast, if potential bidders
player gets paid equally, and discriminating learn all their private information before entry, the
pricing, each player gets paid corresponding to its optimal mechanism entails the same distortions as
bid. in Laffont and Tirole‟s  static model. The
Combinatorial auctions, i.e., bidding on authors conclude that procurers should think twice
combinations of items, tend to lead to more before trying to improve upon a plain auction,
efficient allocations than traditional auctions in making sure that the benefits of being „smarter‟
multi-item auctions where the agents‟ valuations of exceed the costs, paying particular attention to the
items are not additive. This is because the users effect on entry. Wang  studied renegotiation in
can express complementarities in their bids, and procurement auctions, conveying information
the winner determination algorithm will take these about a firms‟ cost of completion and concluded
into account. Unfortunately, determining the that the negotiable prices are not just „cheap talk‟
winners - determining what items each bidder gets or „ceiling prices‟, these costs serve
- so as to maximize revenues is NP-complete. simultaneously as bids to win the contract and
Sandholm , to tackle the limitations of the conveys information regarding a firm‟s cost, which
existing approaches, propose a new search is vital to later negotiations.
algorithm for optimal anytime winner In auctions, often times, there exists both a
determination. It significantly enlarges the production-to-order (PTO) market and a product-
envelope of input sizes for which combinatorial to-stock (PTS) market. Phillips et al  have
auctions with optimal winner determination are investigated buyer and seller behavior in these
computationally feasible. The highly optimized markets, when they are linked and the choice of
algorithm achieves this mainly by capitalizing on participation is endogenous; buying and selling
the fact that the space of bids is necessarily agents can chose to participate in either or both
sparsely populated in practice. The algorithm can types of markets. In a PTS market, the seller has
be terminated at any time before completion with a inventory on hand. Production takes place in
feasible monotonically improving solution in hand. advance of the sale and the buyer usually takes
The author has also developed an E-Commerce delivery within a short period of time after the sale
server that implements several techniques for is made. PTO market transactions usually result
automatically facilitating commerce; including an from long-term buyer-supplier contracts. Sales are
auction house with combinatorial auction – made before output is available. Agents agree on
currently the first and only Internet auction to prices and the future delivery of quantities before a
support combinatorial auctions. production run begins or it is completed. The
Bichler  investigates multi-attribute authors observed prices, the quantities traded, and
auctions, an economic mechanism, which earnings when participants buy and sell in
automates negotiation on multiple attributes of a computerized double auctions. The authors show
deal. A basic question of auction design theory is that sellers fare best in a PTS only market and earn
which auction format maximizes the bid-taker‟s the least in a PTO only market whereas opposite is
profit. Bichler  shows that the overall utility observed for buyers. The linked design offers a
achieved in multi-attribute auction formats is middle ground for both buyer and seller earnings.
significantly higher than in single auctions and has The body of knowledge of auctions is very
good potential to automate negotiations in various extensive. Another important area of research is in
the designing of auction agents who scour the agent-mediated bidding, auctions and contracting,
Internet and decide for themselves which actions and enterprise knowledge management .
to pursue, for whom and under what terms and
conditions. These autonomous agents represent 5. Coordination Mechanism in Supply Chains
different organizations and are increasingly being
required to operate in open, distributed systems Research on supply chain coordination spans
comprising multiple problem solvers with the domains of marketing, economics, and
competing objectives. In such situations, agents operations management. Gilbert and Ballou 
need to interact with one another, via a negotiation extensively review and analyze present literature in
mechanism, in order to procure services and to coordination mechanisms, encompassing the
manage their action interdependencies. Besides, aspects of design, implementation and strategies
delays and long communications can carry for improvement. Not much research has been
negative externalities, in addition to addition to done to investigate the role pricing and ordering
their direct negative effect on agents‟ utilities. This policy can play in coordinating supply chains and
calls for work on negotiations as an essential in fact, the authors could not find any literature
component of multi-agent systems research and that specifically addresses the benefits that accrue
development . to a supply chain when downstream firms are
The most common form of buyer-supplier given incentives to provide earlier commitment to
relationship in supply chains is one-to-many. purchases. Based on this, Gilbert and Ballou 
Vulkan and Jennings , based on auctions and develop a model for identifying and quantifying
game theory and mechanism design, devised a the benefits to the supplier from obtaining
negotiation model focusing on the specific advanced commitments from downstream
problem of service allocation amongst customers. This model could aid a firm in
autonomous, automated agents. Their work could determining the maximum price discount and
be extended to address more complex buyer- incentives to be offered to encourage them to
supplier interactions, like many-to-many. Yung commit to their orders in advance. Careful
and Yang  propose the integration of multi- balancing of the advanced ordering time with the
agent technology and constraint network for price discount can lead to cost reductions for both
solving the supply chain management problem. members of the supply chain.
Yan et al  develop a multi-agent based In electronic market transactions, auctions
negotiation support system for distributed electric serve as a price-determination mechanism. Jin and
power transmission cost allocation based on the Wu‟s  seminal work shows that auctions could
network flow model and KQML. also serve as a coordination mechanism and its
A fundamental question that must be form could have a significant impact on the
addressed in software agents is coordination in dynamics of supplier-buyer interaction. The
multi-agent systems. However, the coordination authors re-examine the incentives of participants in
mechanisms have neither been formally addressed electronic environment, and propose mechanisms
in agent-based manufacturing nor in agent-based that would achieve channel coordination. The main
supply chains. Wu  and his collaborators focus of their research is to provide insights that
developed several multi-agent systems for allow market makers to compare alternative
knowledge management in manufacturing, supply contracting mechanisms, and to evaluate their
chains, negotiation, and agent-mediated auctions. impact on the suppliers, buyers, and the supply
Their research mainly focuses on three areas: (1) chain. The authors first investigate a two-supplier,
coordination mechanisms in agent-based supply one-buyer system under complete information and
chains; (2) coordination mechanisms in agent- evaluate the effects of contract coordination on the
mediated auctions; and (3) Multi-agent enterprise players involved. They then examine the
knowledge management, performance impact and asymmetric information case and propose new
human aspects. The author reviews current work in mechanisms that would achieve channel
the above-mentioned categories and proposes coordination. From these models, they derive
future directions of research. Although still in its analytical insights for four main market schemes,
infancy, multi-agent based systems have been and their implications to supply chain
found very promising in supply chain knowledge coordination. The market schemes considered are:
management, in coordination and collaboration in wholesale price auction; catalog auction; and two-
part contract auction where side payments are adaptability and agility. A DPS can engage in co-
introduced for channel coordination, but the operation, competition, co-ordination, and
buyer‟s retail price and handling cost command processes to reach a coherent state, a
observable/not observable. state where conflicts and redundant efforts are
Furthermore, they show that buyers could avoided. The specific classes of DPS‟s viz., Fractal
extract significant benefits from supplier Factory, Bionic Manufacturing and Holonic
competition, while market intermediaries, i.e., the Manufacturing Systems, present organizational
host of supply chain exchange markets, could play models for the corporation as well as guidelines for
an important role to improve channel efficiency. the development of the system regarding its
Although the authors consider the situation up to implementation and expected behaviors .
two suppliers one buyer, their models could further The inter-entity interactions in a DPS closely
be extended for multiple-supplier one buyer and match the buyer-supplier behavior in a supply
multiple-supplier multiple-buyer systems with chain, with a few conceptual differences, and
deterministic and stochastic market demands. hence the concepts and present research in areas
Further research could also be done with other such as; coordination mechanisms, contracting and
forms of auction mechanisms, supplier costs and auctioning mechanisms and automated agents;
pricing incentives. The authors propose further could be replicated and studied from DPS‟
investigation of their models from the particular perspective.
perspective of the market intermediary. The presence of a DPS in a supply chain
The new economic dynamics in the supply further complicates the coordination between the
chains are presenting researchers with unique entities involved in the network. Timpe and
challenges. Single organizational units no longer Kallrath  develop a general mixed-integer
handle development and manufacturing. Instead, linear programming model based on a time-
these tasks are distributed among various indexed formulation covering the relevant feature
companies or among several organizational units required for the complete supply chain
within a company. In a supply chain network, the management of a multi-site production network.
companies involved form customer-supplier links. The model combines aspects related to production,
With the exception of the consumer, each customer distribution and marketing, and involves
is a co-producer within the supply chain, and thus production sites and sales points. The paper also
is also a supplier. This scenario, present in addresses new conceptual aspects like, defining the
Distribution Production Systems, further capacity of a multi-site, multi-product production
complicates the buyer-supplier interaction and network, and the approaches to complex planning
coordination; this calls for extensive research in problems. Their work could further be extended to
integrating a distributed production system with consider different aspects of lot sizing problems,
supply chains. different time scales attached to production and
distribution, the use of periods with different
6. Distributed Production Systems lengths, and the modeling of batch and campaign
Globalization forces organizations to Montreuil et al , based on distributed
recognize that performance is not the feature of a collaborative vision of manufacturing systems,
single firm, but the complex output of a network of present a strategic framework for designing and
interconnected individual firm performances. operating responsibility-oriented agile
Current economic practices and trends lead to the manufacturing networks, enabling to
development of new ways of thinking, managing collaboratively plan, control and manage day-to-
and organizing in corporations, where autonomy, day contingencies in a dynamic environment. The
decentralization and distribution are some of the authors first introduce a network-oriented
buzzwords. This lead to the development of a new organizational strategy according to which a
class of organizational models named Distributed manufacturing business dynamically organizes its
Production System (DPS). As its name suggests, a operations through the configuration and activation
DPS has several entities, which must interact with of a distributed network of interdependent
each other to become a system. DPS‟s basic responsible manufacturing centers. Then, they
properties are: autonomy, distribution, present a collaborative relationships strategy as a
decentralization, dynamism, reaction, flexibility, contractual approach to implement operational
networks. Finally, they introduce an operational network as well as interacting with the outside
strategy, showing how this networked channel.
collaborative approach can be used to manage day- The proposed system is based on a one buyer-
to-day activities and contingencies in a close-to- one supplier relationship with deterministic
reality manner. demands. There is no mechanism devised to
To achieve these objectives, Montreuil et al encompass multiple-buyer multiple-supplier
 present „NetMan‟ strategic framework for scenarios where simultaneous auctioning takes
enabling networked manufacturing according to place with time dependent demands. This could be
which, a manufacturing business dynamically a possible extension of the research, where
organizes its operations through the configuration auctions, contracting and coordination mechanisms
and activation of a distributed network of could be studied further, and aid in providing a
interdependent manufacturing entities, called framework for developing „real-world‟ integrated
NetMan centers. Each of these entities may be an DPS-Supply Chain models.
external business (external supplier or
subcontractor), as well as an internal center 7. Revenue Management in Supply Chains
(manufacturing cell, process center, a department,
maintenance center). Each of these internal centers Revenue Management (RM) is a business
recursively operates as a manufacturing business, principle that balances supply and demand to
subject to a mission agreed upon with the parent control price and or/inventory availability in order
business. These centers are organization units to maximize revenue and profit growth . It can
composed of a group of one or more functional be viewed as a special class of the problem of
entities responsible for making decisions and matching supply to demand. Harris and Pinder 
executing tasks, with each center having its own define revenue management as an order acceptance
focalized mission, contributing to the overall and refusal process that employs differential
business mission. In NetMan, each responsibility is pricing strategies and stop sales tactics to
defined in terms of satisfying some specific set of reallocate capacity, enhance delivery reliability
needs from the center‟s clients, and in general and speed, and realize revenue from change order
from the center‟s interactors (all other centers with responsiveness in order to maximize the revenue
which it has to interact), with different kinds of from pre-existing capacity. RM helps firms
interactions linking them. Within its mission, each reallocate undifferentiated units of capacity to
NetMan center is self-managed and responsible for alternative market segments of varying
making its own strategic, tactical and operational profitability as booked orders diverge from the
decisions, and in order to achieve its mission, each forecast. Cross  delineates seven core concepts
center must satisfy the needs of its clients and its of RM as: (1) focus on price rather than costs when
interactors. All transactions are based on win-win balancing supply and demand, (2) replace cost-
client-provider relationships. Once the mission of based pricing with market-based pricing, (3) sell to
each NetMan center is well defined, the segmented micromarkets, not to mass valuable
relationships between the centers become critical customers, (4) reserve sufficient product of your
to the performance of the overall network. This is most valuable customers, (5) make decisions based
achieved by setting and managing information-rich on knowledge, not suppositions, (6) exploit each
collaborative relationships between centers, based product‟s value cycle, and (7) continually
on contract agreements negotiation. They may reevaluate revenue opportunities.
define the pricing mechanisms, as well as the RM can apply to virtually all businesses. Cross
general response time and quality requirements. , Kimes , Weatherford and Bodily  and
The elements such as, needs, plans, offers, client Harris and Peacock  have identified several
and supplier models, and rules of the games, common characteristics of business environments
describe the NetMan business dynamics. In a where the impact of RM is most significant. They
minimalist implementation of NetMan, a buyer include: perishability of inventory, products or
would propagate its supply needs to each of its services; fixed capacity or no short-term
suppliers and wait for their feedback before adjustments of supply; high capacity change costs
making the offer. In essence, the model emulates and pricing incentives; demand/market
the workings of a DPS interacting within its segmentation; advance sales/bookings of
inventory; stochastic demand and dynamic
markets; historical sales data; forecasting concepts in analyzing coordination mechanisms in
capabilities; and competition between individual supply chains.
and bulk purchasers. The extent to which a firm Due to the quasi-autonomous nature of the
encounters these uncertainties in its businesses, production units and their organizational objective
and the degree of challenges it faces, forms the of attaining a cumulative maximum gain in
basis for understanding how useful RM would be revenue, the concepts of RM can effectively be
and assist in the development of appropriate tools applied in a DPS environment. The different
and processes to address the issue it is facing. production units in a DPS are aware of the
RM was pioneered in airline industry and is capacity/loading status of each other because of
extensively being applied in hotel, transportation, real-time information flow, making them capable
utility, telecommunications, healthcare, and other of better handling the „bullwhip effect‟ that are due
services industries. It has considerable potential for to uncertainties embedded with demand forecasts.
research in supply chains and manufacturing Quantitative models based on RM concepts could
operations, especially in the such areas as, analysis be developed for the pricing and reallocation
of integrated production distribution systems, decisions to accurately assess the relative tradeoffs
dynamic pricing models, price-determination between under and over utilization of individual
auction models, price-based buyer-supplier production units. Besides, these models could be
relationships, and examination of contracting and analyzed from the particular perspectives of both
coordination mechanisms across the supply chains. the supplier and the production units, aiding in
Not much has been done in this area and in fact, achieving channel coordination and efficiency of
the author is unaware of any literature available the supply chain.
that would address these issues from the
perspective of RM. McGill et al  present 8. Conclusion
comprehensive reviews of general RM problems
and suggest future research directions. Their With this extensive review of literature in the
survey includes a glossary of RM terminology and areas of Supply Chain Management, this paper has
a bibliography of over 190 articles. There are four served to identify and shed some lights on the
key areas of RM research: demand forecasting, possible areas of future research. The dynamic
overbooking, inventory control, and pricing. All economic scenario complicates supply chain
these areas are encountered in both traditional and partnerships and buyer-supplier interaction and
electronic supply chains, as well as manufacturing necessitates the researchers to stay abreast of the
operations. Increasing demand for customer recent and emerging issue to help the businesses
responsiveness has created service-oriented sustain their competitive advantage. The discipline
manufacturing-distribution environments, suitable of operations research has both the competence
for the application of RM methods. Harris and and capacity to address these complex issues
Pinder  apply RM concepts and techniques to through effective supply chain modeling in the
assemble-to-order manufacturing environments form of simulation, heuristics, game theory,
and presents models for optimal pricing and optimization, and revenue management. Such
capacity decisions for demand management. The operations research modeling will help firms
customer responsiveness usually takes place in the understand the true benefits of effective supply
form of contracts and buyer-supplier relationships, chain integration and enhance the design and
thus there is considerable potential of using RM implementability of supply chain research.
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