Global supply chain networks and risk management: A multi-agent framework

Abstract

In this paper, we develop a global supply chain network model in which both physical and electronic transactions are allowed and in which supply-side risk as well as demand-side risk are included in the formulation. The model consists of three tiers of decision-makers/agents: the manufacturers, the distributors, and the retailers who may be located in the same or in different countries and may conduct their transactions in distinct currencies. We model the optimizing behavior of the various decision-makers, with the manufacturers and the distributors being multicriteria decision-makers, and concerned with both profit maximization and risk minimization. The retailers, in turn, are faced with random demands for the product. We derive the governing equilibrium conditions and establish the finite-dimensional variational inequality formulation. We provide qualitative properties of the equilibrium product flow and price pattern in terms of existence and uniqueness results and also establish conditions under which the proposed computational procedure is guaranteed to converge. Finally, we illustrate the global supply chain network model and the computational procedure through several numerical examples. This research illustrates the modeling, analysis, and computation of solutions to decentralized supply chain networks with multiple agents in the presence of electronic commerce and risk management in the global arena. Moreover, it highlights and applies some of the theoretical tools that are now available for such multi-agent problems. © Springer-Verlag Berlin Heidelberg 2006.