Operational hedging and coordination for prefabricated construction supply chain management

Abstract

Operational hedging methods are adopted for mitigating the impact caused by supply chain uncertainties. However, adopting an operational hedging method requires the executives to make extra investment. An independent entity will not join a hedging strategy unless he could become better off. This thesis investigates the effect of operational hedging and develops the coordination mechanism towards a certain hedging problem in the prefabricated construction supply chain management (PCSCM). This thesis studies four scenarios. The first explores the coordination mechanism for solving a production lead-time hedging (PLTH) issue. The PLTH is proposed by the building contractor, for reducing uncertainties from the production process. However, this strategy forces the prefab factory to compress its production lead-time. To coordinate these two entities, a decision-related transfer term and a cost sharing term are involved. The optimal decisions are obtained by analyzing the game. It is observed that, under the coordination mechanism, each party gets better-off and less affected by the supply chain uncertainty. The second scenario studies the coordination mechanism for solving a buffer space hedging (BSH) issue. To hedge against improper delivery of prefab, the building contractor requires the transportation company to reserve some buffer space for contingency use. However, this strategy may impact the operation efficiency and potential profit of the transportation company. Hence, coordination mechanism should be studied. Three game models are discussed. It is found that the BSH problem is solved by involving a cost sharing term. Also, the proposed mechanisms coordinate this decentralized supply chain. The third scenario investigates the coordination mechanisms for solving an interactive operational hedging problem. The building lead-time hedging (BLTH) refers to reducing the building lead-time uncertainty. The BSH is offered by a general contractor as an incentive to entice the building contractor to adopt the BLTH strategy. For studying the incentive contracts, two cooperative games with proper side-payments are developed. Under these contracts, the system is performed as if it is operating in a centralized fashion while each party gets better-off. The fourth scenario studies an interactive operational hedging problem under a multi-period setting. A BLTH strategy is adopted by a building contractor. To facilitate the application of this hedging strategy, a BSH strategy should be adopted for ensuring a higher system processing capability. This BSH strategy, however, adds more pressure to the transportation company. To coordinate these two parties, a Nash game model and a cooperative game model are studied. Algorithms to obtain the optimal hedging decisions and the contract parameters which need to be adjusted for each period are provided. It is observed that perfect coordination is reached under the cooperative game. This thesis contributes to the literature in several aspects. First, theoretical analyses are conducted to learn the effects of the operational hedging methods to prefabricated construction industry. Second, the proper coordination mechanisms for solving the conflict caused by a certain hedging methods are developed. Third, the benefits of the purposed mechanisms are examined. Fourth, useful managerial implications and some counterintuitive findings are obtained by conducting numerical studies.