Supply management of high-value components with a credit constraint

L. Zhao, F.R. Langendoen, J.C. Fransoo

Research output: Contribution to journalArticleScientificpeer-review


Due to rapid increases in the automotive markets in emerging economies, leading car manufacturers rapidly expand their manufacturing capacity in countries such as China. A certain portion of key performance components however continue to be sourced from developed countries. We study such a manufacturer that imports high-value components from a developed country. There are two available transportation modes: a slow mode with low cost and long and stochastic lead time, and a fast mode with high cost and short and deterministic lead time. Moreover, the manufacturer is subject to a credit constraint that bounds both the inwarehouse inventory and the number of outstanding orders (because it needs to pay for the components in advance). Consequently, the cheapest hedge against demand and supply uncertainty—inventory—is only available to a limited extent and the decision maker must turn to using the fast transportation mode for a much larger share of the orders. We model the manufacturer’s ordering policy and study its performance using simulation. Our study shows the adverse effects that the credit limit has on the growth opportunities of such companies in developing countries that import high-value components or other goods from developed countries. We show that especially the reduction in lead time variability can substantially reduce these adverse effects. Realizing that this variability is primarily caused by the import customs procedures, governments in developing economies have a means to assist their local manufacturers.
Original languageEnglish
Pages (from-to)100-118
JournalFlexible Services and Manufacturing Journal
Issue number2
Publication statusPublished - 2012
Externally publishedYes


  • supply management
  • transportation mode
  • credit constraint
  • inventory


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