Supply Chain Network Capacity Competition with Outsourcing : A Variational Equilibrium Framework

This paper develops a supply chain network game theory framework with multiple manufacturers/producers, with multiple manufacturing plants, who own distribution centers and distribute their products, which are distinguished by brands, to demand markets, while maximizing profits and competing non-cooperatively. The manufacturers also may avail themselves of external distribution centers for storing their products and freight service provision. The manufacturers have capacities associated with their supply chain network links and the external distribution centers also have capacitated storage and distribution capacities for their links, which are shared among the manufacturers and competed for. We utilize a special case of the Generalized Nash Equilibrium problem, known as a variational equilibrium, in order to formulate and solve the problem. A case study on apple farmers in Massachusetts is provided with various scenarios, including a supply chain disruption, to illustrate the modeling and methodological framework as well as the potential benefits of outsourcing in this sector