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Optimal lot sizing in a non-cooperative material manager-controller game

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  • Fandel, Günter
  • Trockel, Jan

Abstract

It is important for manufacturing companies to optimise purchase order quantities. Inaccurate lot size planning raises costs and lowers profits, which top management of course attempts to avoid through controlling processes. The lot size decision becomes even more relevant in the case of just-in-time delivery within a supply chain. The interaction between lot sizing and auditing can be described in terms of a modified inspection game. This paper considers how probabilities, which are the basis for the mixed strategies at equilibrium in the inspection game, will change if the level of penalties accruing to the two players (material manager and controller) depends on the cost deviation caused by the material manager's poor lot-size planning. It is evident that the Nash equilibrium shifts to the strategy combination (methodically determined decision and low auditing level), if the penalties imposed on the controller and material manager increase. Penalties that depend on such deviations, and an accurate audit of the controller's report by top management, prove to be the best instruments for avoiding mismanagement by the material manager and poor controller work, both of which lead to high costs.

Suggested Citation

  • Fandel, Günter & Trockel, Jan, 2011. "Optimal lot sizing in a non-cooperative material manager-controller game," International Journal of Production Economics, Elsevier, vol. 133(1), pages 256-261, September.
    • Handle: RePEc:eee:proeco:v:133:y:2011:i:1:p:256-261
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    References listed on IDEAS

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    1. Fandel, G. & Stammen, M., 2004. "A general model for extended strategic supply chain management with emphasis on product life cycles including development and recycling," International Journal of Production Economics, Elsevier, vol. 89(3), pages 293-308, June.
    2. Avenhaus, Rudolf & Von Stengel, Bernhard & Zamir, Shmuel, 2002. "Inspection games," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 3, chapter 51, pages 1947-1987, Elsevier.
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    4. Avenhaus, Rudolf & Canty, Morton & Marc Kilgour, D. & von Stengel, Bernhard & Zamir, Shmuel, 1996. "Inspection games in arms control," European Journal of Operational Research, Elsevier, vol. 90(3), pages 383-394, May.
    5. Silver, Edward A., 1992. "Changing the givens in modelling inventory problems: the example of just-in-time systems," International Journal of Production Economics, Elsevier, vol. 26(1-3), pages 347-351, February.
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    Cited by:

    1. Fandel, G. & Trockel, J., 2013. "Avoiding non-optimal management decisions by applying a three-person inspection game," European Journal of Operational Research, Elsevier, vol. 226(1), pages 85-93.
    2. Günter Fandel & Jan Trockel, 2013. "Applying a one-shot and infinite repeated inspection game to materials management," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 21(2), pages 495-506, March.
    3. Susumu Shikano & Michael F Stoffel & Markus Tepe, 2017. "Information accuracy in legislative oversight: Theoretical implications and experimental evidence," Rationality and Society, , vol. 29(2), pages 226-254, May.
    4. Günter Fandel & Jan Trockel, 2016. "Investment and lot size planning in a supply chain: coordinating a just-in-time-delivery with a Harris- or a Wagner/Whitin-solution," Journal of Business Economics, Springer, vol. 86(1), pages 173-195, January.

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