Equilibrium analysis in multi-echelon supply chain with multi-dimensional utilities of inertial players

Abstract

In a supply chain, the importance of information elicitation from the supply chain players is vital to design supply chain network. The rationality and self-centredness of these players causes the information asymmetry in the supply chain and thus situation of conflict and non-participation of the players in the network design process. In such situations, it is required to analyse the supply chain players’ behaviour in order to explore potential for coordination through incentives. In this paper, a novel approach of social utility analysis is proposed to elicit the information for supply chain coordination among the supply chain players in a dyadic relationship – supplier and buyer. In principal, we consider a monopsony situation where buyer is a dominant player. With the objective of maximizing the social utility, efforts have been made to value behavioural issues in supply chain. On the other hand, the reluctance of player due to the information asymmetry is measured in the form of inertia – an offset to the supply chain profit. The suppliers’ behaviour is analysed with three distinct level of risk for two types of the product in procurement process. The useful insight from this paper is in supplier selection process where the reluctance of supplier offsets supply chain profit. The paper provides recommendations to supply chain managers for efficient decision-making ability in supplier selection process.