Reducing the Probability of Bankruptcy Through Supply Chain Coordination

Abstract

With the increasing interdependence among supply chain members, bankruptcy of a supply chain member may cause other member firms to get into financial difficulties. This paper investigates the methods for reducing the probability of bankruptcy through supply chain coordination. Based on the developed multiagent simulation model for a simple three-echelon supply chain, the effects of coordination mechanisms, such as information sharing (INS) and vendor-managed inventory (VMI), on reducing the occurrence of bankruptcy at each stage of the supply chain are examined. Simulation results show that such coordination mechanisms are effective in reducing the risk of bankruptcy. However, the key roles of these coordination mechanisms, e.g., the manufacturer in VMI and the retailer in INS, may be reluctant to cooperate since they gain less benefit or even suffer a loss from the coordination. Additional cooperation incentive measures, i.e., permissible delay in payment for INS and inventory subsidy for VMI, are thus proposed for the implementation of these coordination mechanisms, and simulation results confirm their validity.

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