In this article – the fifth in a series on electronic supply chains – we will present a method for selecting an electronic chain model that will yield the highest possible profit for the manufacturer under the conditions of a given logistics system.
Let us recall that the application of e-business technology enables the separation of the product flow stream and the information flow stream, which are traditionally closely dependent on each other. This separation allows the manufacturer to reorganize the supply chain, where the manufacturer retains its advantageous position at the beginning of the product flow stream, while changing its disadvantageous position at the end of the information flow stream to a position closer to the end customer.
In previous articles in this series, three such new models were presented – a model with a virtual warehouse and a physical warehouse (Model 1), a model with a virtual warehouse and a direct delivery strategy (Model 2), and a mixed model with a virtual warehouse, a physical warehouse, and a direct delivery strategy (Model 3).
Selection method
The quantitative analysis of electronic supply chains presented in previous articles in this series shows that the choice of the model that will bring the manufacturer the highest possible profit depends on three factors:
1. The profitability threshold for direct service dmin, i.e., the minimum demand volume necessary for it to be profitable for the manufacturer to handle the order independently (without the participation of intermediaries),
2. The margin m charged by the manufacturer for transferring the order to an intermediary,
3. The coefficient km of the manufacturer’s participation in the costs of maintaining unsold inventory by the intermediary.
The interdependencies between the individual electronic supply chain models indicate the advisability of using an analysis of the boundaries within which individual models can bring the manufacturer the greatest profit. With regard to the profitability threshold dmin, five ranges (marked with letters A to E) have been determined, within which different combinations of transformation models that can yield the highest possible profit apply. These combinations are as follows (Fig. 1):
1. Range A – Model 1 or Model 2
2. Range B – Model 1 or Model 2 or Model 3
3. Range C – Model 1 or Model 2 or Model 3
4. Range D – Model 1 or Model 3
5. Range E – Model 1
The values D1 – D4, which constitute the boundaries of individual ranges, are determined by comparing the maximum possible profit in individual models for boundary values and/or marginal values of the margin m and the participation coefficient km. Readers interested in a detailed quantitative analysis leading to the determination of these values are referred to item [1].
The article comes from the magazine “Logistyka”, No. 4/2006.