Supply chain coordination with service -differentiated customer classes

Supply chains can often be characterized by multiple customer segments differentiated by their service requirement (in terms of product availability, response times or fillrates). This dissertation studies strategies and methodologies for managing service differentiated supply chains. Our approach is to combine an extensive field study with a rigorous analysis of inventory policies. This research was directly motivated by a supply chain research project with the US Navy and the Defense Logistics Agency. The first part of the dissertation reports on an extensive empirical and field study of the logistics system used to support service parts for weapon systems in the military. This study tests the relationships between the drivers of performance in the military logistics system. This study also provides important insights into how companies can effectively manage parts with heterogeneous attributes and service requirements. The second part analyzes a threshold inventory rationing policy as a strategy for providing service differentiation for customer classes. By using a cost framework, we develop a tractable and implementable solution to the threshold rationing problem which minimizes total inventory costs. Our numerical study shows that threshold rationing policies are most beneficial when there exists a significant difference in the service requirements for the two customer classes, and when the high priority customer demand is a small fraction of total demand. The cost savings in these cases by using threshold rationing policies could be as high as 30%. The final part of the dissertation uses a game-theory framework for analyzing decentralized supply chains. Our analysis confirms that a fixed pricing mechanism can lead to incentive problems for a service differentiated supply chain. An incentive compatible pricing mechanism can be constructed by charging a price differential for customers with high and low service requirements. Our analysis also shows that by using, delivery guarantees, the overall supply chain costs can be minimized. Thus, the last part of this dissertation provides a framework for pricing differentiated service requirements in a decentralized supply chain