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Statistical mechanics approach for steady-state analysis in M/M/s queueing system with balking
Incentive contract design for supplier switching with considering learning effect
1. | School of Management, Tianjin University of Technology, Tianjin, 300384, China |
2. | College of Management and Economics, Tianjin University, Tianjin, 300072, China |
For minimizing purchase cost, a buying firm would switch to suppliers with providing more favorable prices. This paper investigates the optimal switching decision of a buyer that may switch to an entrant supplier with production learning ability (which is regarded as a private information) under a principal-agent framework. The results obtained show that the switching cost and the learning effect have significant impacts on the buyer's switching decision. Only when the fixed component of the switching cost is relatively low, the buyer can be better off from a partial switching strategy; otherwise, the buyer should take an all-or-nothing switching strategy or no switching strategy. As the learning ability of the entrant supplier increases, the buyer prefers to make more switching. Finally, a benefit-sharing contract is proposed to evaluate the performance of the principal-agent contract, and we demonstrate that the principal-agent contract almost completely dominates the benefit-sharing contract.
References:
[1] |
P. S. Adler and K. B. Clark,
Behind the learning curve: A sketch of the learning process, Management Science, 37 (1991), 267-281.
doi: 10.1287/mnsc.37.3.267. |
[2] |
K. J. Arrow,
The economic implications of learning by doing, Review of Economic Studies, 29 (1962), 155-173.
doi: 10.2307/2295952. |
[3] |
M. Ben-daya and M. Hariga,
Lead-time reduction in a stochastic inventory system with learning consideration, International Journal of Production Research, 41 (2003), 571-579.
doi: 10.1080/00207540210158807. |
[4] |
L. E. Bygballe,
Toward a conceptualization of supplier-switching processes in business relationships, Journal of Purchasing and Supply Management, 23 (2017), 40-53.
doi: 10.1016/j.pursup.2016.04.007. |
[5] |
C. K. Chen, C. C. Lo and Y. X. Liao,
Optimal lot size with learning consideration on an imperfect production system with allowable shortages, International Journal of Production Economics, 113 (2008), 459-469.
doi: 10.1016/j.ijpe.2007.03.025. |
[6] |
M. Cheng, S. Xiao and G. Liu,
Single-machine rescheduling problems with learning effect under disruptions, Journal of Industrial & Management Optimization, 14 (2018), 967-980.
doi: 10.3934/jimo.2017085. |
[7] |
P. Dasgupta and J. Stiglitz,
Learning-by-doing, market structure and industrial and trade policies, Oxford Economic Papers, 40 (1988), 246-268.
doi: 10.7916/D8183HJM. |
[8] |
J. S. Demski, D. E. M. Sappington and P. T. Spiller,
Managing Supplier Switching, The RAND Journal of Economics, 18 (1987), 77-97.
doi: 10.2307/2555536. |
[9] |
L. Feng and Y. L. Chan,
Joint pricing and production decisions for new products with learning curve effects under upstream and downstream trade credits, European Journal of Operational Research, 272 (2019), 905-913.
doi: 10.1016/j.ejor.2018.07.003. |
[10] |
G. Friedl and S. M. Wagner,
Supplier development or supplier switching?, International Journal of Production Research, 50 (2012), 3066-3079.
doi: 10.1080/00207543.2011.588804. |
[11] |
D. Fudenberg and J. Tirole,
Capital as a commitment: Strategic investment to deter mobility, Journal of Economic Theory, 31 (1983), 227-250.
doi: 10.1016/0022-0531(83)90075-3. |
[12] |
A. Gamble, E. A. Juliusson and T. Gärling,
Consumer attitudes towards switching supplier in three deregulated markets, The Journal of Socio-Economics, 38 (2009), 814-819.
doi: 10.1016/j.socec.2009.05.002. |
[13] |
B. C. Giri and C. H. Glock,
A closed-loop supply chain with stochastic product returns and worker experience under learning and forgetting, International Journal of Production Research, 55 (2017), 6760-6778.
doi: 10.1080/00207543.2017.1347301. |
[14] |
J. B. Heide and A. M. Weiss,
Vendor consideration and switching behavior for buyers in high-technology markets, Journal of Marketing, 59 (1995), 30-43.
doi: 10.1177/002224299505900303. |
[15] |
T. W. Hung and P. T. Chen,
On the optimal replenishment in a finite planning horizon with learning effect of setup costs, Journal of Industrial & Management Optimization, 6 (2010), 425-433.
doi: 10.3934/jimo.2010.6.425. |
[16] |
M. Y. Jaber and M. Bonney,
The economic manufacture/order quantity (EMQ/EOQ) and the learning curve: Past, present, and future, International Journal of Production Economics, 59 (1999), 93-102.
doi: 10.1016/S0925-5273(98)00027-9. |
[17] |
B. Kamrad and A. Siddique,
Supply contracts, profit sharing, switching, reaction options, Management Science, 50 (2004), 64-82.
doi: 10.1287/mnsc.1030.0157. |
[18] |
S. L. Li, A. Madhok, G. Plaschka and R. Verma,
Supplier-switching inertia and competitive asymmetry: A demand-side perspective, Decision Sciences, 37 (2006), 547-576.
doi: 10.1111/j.1540-5414.2006.00138.x. |
[19] |
T. Li, S. P. Sethi and X. L. He,
Dynamic pricing, production, and channel coordination with stochastic learning, Production and Operations Management, 24 (2015), 857-882.
doi: 10.1111/poms.12320. |
[20] |
C. Löffler, T. Pfeiffer and G. Schneider,
Controlling for supplier switching in the presence of real options and asymmetric information, European Journal of Operational Research, 223 (2012), 690-700.
doi: 10.1016/j.ejor.2012.07.018. |
[21] |
M. March, S. Zanoni and M. Y. Jaber,
Economic production quantity model with learning in production, quality, reliability and energy efficiency, Computers & Industrial Engineering, 129 (2019), 502-511.
doi: 10.1016/j.cie.2019.02.009. |
[22] |
G. Mosheiov,
Scheduling problems with a learning effect, European Journal of Operational Research, 132 (2012), 687-693.
doi: 10.1016/S0377-2217(00)00175-2. |
[23] |
R. B. Myerson,
Incentive compatibility and the bargaining problem, Econometrica: Journal of the Econometric Society, 47 (1979), 61-73.
doi: 10.2307/1912346. |
[24] |
T. Pfeiffer,
A dynamic model of supplier switching, European Journal of Operational Research, 207 (2010), 697-710.
doi: 10.1016/j.ejor.2010.05.030. |
[25] |
M. Plaza, O. K. Ngwenyama and K. Rohlf,
A comparative analysis of learning curves: Implications for new technology implementation management, European Journal of Operational Research, 200 (2010), 518-528.
doi: 10.1016/j.ejor.2009.01.010. |
[26] |
S. Shum, S. L. Tong and T. T. Xiao,
On the impact of uncertain cost reduction when selling to strategic consumers, Management Science, 63 (2016), 843-860.
doi: 10.1287/mnsc.2015.2355. |
[27] |
L. Silbermayr and S. Minner,
Dual sourcing under disruption risk and cost improvement through learning, European Journal of Operational Research, 250 (2016), 226-238.
doi: 10.1016/j.ejor.2015.09.017. |
[28] |
A. M. Spence,
The learning curve and competition, The Bell Journal of Economics, 12 (1981), 49-70.
doi: 10.2307/3003508. |
[29] |
A. T. Tsekrekos and A. N. Yannacopoulos,
Optimal switching decisions under stochastic volatility with fast mean reversion, European Journal of Operational Research, 251 (2016), 148-157.
doi: 10.1016/j.ejor.2015.12.011. |
[30] |
M. Uluskan, A. B. Godfrey and J. A. Joines,
Impact of competitive strategy and cost-focus on global supplier switching (reshore and relocation) decisions, The Journal of The Textile Institute, 108 (2017), 1308-1318.
doi: 10.1080/00405000.2016.1245596. |
[31] |
S. M. Wagner and G. Friedl,
Supplier switching decisions, European Journal of Operational Research, 183 (2007), 700-717.
doi: 10.1016/j.ejor.2006.10.036. |
[32] |
T. P. Wright,
Factors affecting the cost of airplanes, Journal of Aeronautical Sciences, 3 (1936), 122-128.
doi: 10.2514/8.155. |
[33] |
K. Xu, W. Y. Chiang and L. Liang,
Dynamic pricing and channel efficiency in the presence of the cost learning effect, International Transactions in Operational Research, 18 (2011), 579-604.
doi: 10.1111/j.1475-3995.2011.00816.x. |
[34] |
L. E. Yelle,
The learning curve: Historical review and comprehensive survey, Decision Sciences, 10 (1979), 302-328.
doi: 10.1111/j.1540-5915.1979.tb00026.x. |
[35] |
W. I. Zangwill and P. B. Kantor,
The learning curve: A new perspective, International Transactions in Operational Research, 7 (2000), 595-607.
doi: 10.1016/S0969-6016(00)00022-8. |
[36] |
J. X. Zhang, W. S. Tang and M. M. Hu,
Optimal supplier switching with volume-dependent switching costs, International Journal of Production Economics, 161 (2015), 96-164.
doi: 10.1016/j.ijpe.2014.11.021. |
[37] |
J. X. Zhang, Q. Wei, G. W. Liu and W. S. Tang,
A supplier switching model with the competitive reactions and economies of scale effects, IEEE Transactions on Systems, Man, and Cybernetics: Systems, 47 (2017), 2831-2843.
doi: 10.1109/TSMC.2016.2523926. |
[38] |
Q. Zhang, W. S. Tang and J. X. Zhang,
Green supply chain performance with cost learning and operational inefficiency effects, Journal of Cleaner Production, 112 (2016), 3267-3284.
doi: 10.1016/j.jclepro.2015.10.069. |
[39] |
X. Zhao, Z. Pang and K. E. Stecke,
When does a retailer's advance selling capability benefit manufacturer, retailer, or both?, Production and Operations Management, 25 (2016), 1073-1087.
doi: 10.1111/poms.12535. |
show all references
References:
[1] |
P. S. Adler and K. B. Clark,
Behind the learning curve: A sketch of the learning process, Management Science, 37 (1991), 267-281.
doi: 10.1287/mnsc.37.3.267. |
[2] |
K. J. Arrow,
The economic implications of learning by doing, Review of Economic Studies, 29 (1962), 155-173.
doi: 10.2307/2295952. |
[3] |
M. Ben-daya and M. Hariga,
Lead-time reduction in a stochastic inventory system with learning consideration, International Journal of Production Research, 41 (2003), 571-579.
doi: 10.1080/00207540210158807. |
[4] |
L. E. Bygballe,
Toward a conceptualization of supplier-switching processes in business relationships, Journal of Purchasing and Supply Management, 23 (2017), 40-53.
doi: 10.1016/j.pursup.2016.04.007. |
[5] |
C. K. Chen, C. C. Lo and Y. X. Liao,
Optimal lot size with learning consideration on an imperfect production system with allowable shortages, International Journal of Production Economics, 113 (2008), 459-469.
doi: 10.1016/j.ijpe.2007.03.025. |
[6] |
M. Cheng, S. Xiao and G. Liu,
Single-machine rescheduling problems with learning effect under disruptions, Journal of Industrial & Management Optimization, 14 (2018), 967-980.
doi: 10.3934/jimo.2017085. |
[7] |
P. Dasgupta and J. Stiglitz,
Learning-by-doing, market structure and industrial and trade policies, Oxford Economic Papers, 40 (1988), 246-268.
doi: 10.7916/D8183HJM. |
[8] |
J. S. Demski, D. E. M. Sappington and P. T. Spiller,
Managing Supplier Switching, The RAND Journal of Economics, 18 (1987), 77-97.
doi: 10.2307/2555536. |
[9] |
L. Feng and Y. L. Chan,
Joint pricing and production decisions for new products with learning curve effects under upstream and downstream trade credits, European Journal of Operational Research, 272 (2019), 905-913.
doi: 10.1016/j.ejor.2018.07.003. |
[10] |
G. Friedl and S. M. Wagner,
Supplier development or supplier switching?, International Journal of Production Research, 50 (2012), 3066-3079.
doi: 10.1080/00207543.2011.588804. |
[11] |
D. Fudenberg and J. Tirole,
Capital as a commitment: Strategic investment to deter mobility, Journal of Economic Theory, 31 (1983), 227-250.
doi: 10.1016/0022-0531(83)90075-3. |
[12] |
A. Gamble, E. A. Juliusson and T. Gärling,
Consumer attitudes towards switching supplier in three deregulated markets, The Journal of Socio-Economics, 38 (2009), 814-819.
doi: 10.1016/j.socec.2009.05.002. |
[13] |
B. C. Giri and C. H. Glock,
A closed-loop supply chain with stochastic product returns and worker experience under learning and forgetting, International Journal of Production Research, 55 (2017), 6760-6778.
doi: 10.1080/00207543.2017.1347301. |
[14] |
J. B. Heide and A. M. Weiss,
Vendor consideration and switching behavior for buyers in high-technology markets, Journal of Marketing, 59 (1995), 30-43.
doi: 10.1177/002224299505900303. |
[15] |
T. W. Hung and P. T. Chen,
On the optimal replenishment in a finite planning horizon with learning effect of setup costs, Journal of Industrial & Management Optimization, 6 (2010), 425-433.
doi: 10.3934/jimo.2010.6.425. |
[16] |
M. Y. Jaber and M. Bonney,
The economic manufacture/order quantity (EMQ/EOQ) and the learning curve: Past, present, and future, International Journal of Production Economics, 59 (1999), 93-102.
doi: 10.1016/S0925-5273(98)00027-9. |
[17] |
B. Kamrad and A. Siddique,
Supply contracts, profit sharing, switching, reaction options, Management Science, 50 (2004), 64-82.
doi: 10.1287/mnsc.1030.0157. |
[18] |
S. L. Li, A. Madhok, G. Plaschka and R. Verma,
Supplier-switching inertia and competitive asymmetry: A demand-side perspective, Decision Sciences, 37 (2006), 547-576.
doi: 10.1111/j.1540-5414.2006.00138.x. |
[19] |
T. Li, S. P. Sethi and X. L. He,
Dynamic pricing, production, and channel coordination with stochastic learning, Production and Operations Management, 24 (2015), 857-882.
doi: 10.1111/poms.12320. |
[20] |
C. Löffler, T. Pfeiffer and G. Schneider,
Controlling for supplier switching in the presence of real options and asymmetric information, European Journal of Operational Research, 223 (2012), 690-700.
doi: 10.1016/j.ejor.2012.07.018. |
[21] |
M. March, S. Zanoni and M. Y. Jaber,
Economic production quantity model with learning in production, quality, reliability and energy efficiency, Computers & Industrial Engineering, 129 (2019), 502-511.
doi: 10.1016/j.cie.2019.02.009. |
[22] |
G. Mosheiov,
Scheduling problems with a learning effect, European Journal of Operational Research, 132 (2012), 687-693.
doi: 10.1016/S0377-2217(00)00175-2. |
[23] |
R. B. Myerson,
Incentive compatibility and the bargaining problem, Econometrica: Journal of the Econometric Society, 47 (1979), 61-73.
doi: 10.2307/1912346. |
[24] |
T. Pfeiffer,
A dynamic model of supplier switching, European Journal of Operational Research, 207 (2010), 697-710.
doi: 10.1016/j.ejor.2010.05.030. |
[25] |
M. Plaza, O. K. Ngwenyama and K. Rohlf,
A comparative analysis of learning curves: Implications for new technology implementation management, European Journal of Operational Research, 200 (2010), 518-528.
doi: 10.1016/j.ejor.2009.01.010. |
[26] |
S. Shum, S. L. Tong and T. T. Xiao,
On the impact of uncertain cost reduction when selling to strategic consumers, Management Science, 63 (2016), 843-860.
doi: 10.1287/mnsc.2015.2355. |
[27] |
L. Silbermayr and S. Minner,
Dual sourcing under disruption risk and cost improvement through learning, European Journal of Operational Research, 250 (2016), 226-238.
doi: 10.1016/j.ejor.2015.09.017. |
[28] |
A. M. Spence,
The learning curve and competition, The Bell Journal of Economics, 12 (1981), 49-70.
doi: 10.2307/3003508. |
[29] |
A. T. Tsekrekos and A. N. Yannacopoulos,
Optimal switching decisions under stochastic volatility with fast mean reversion, European Journal of Operational Research, 251 (2016), 148-157.
doi: 10.1016/j.ejor.2015.12.011. |
[30] |
M. Uluskan, A. B. Godfrey and J. A. Joines,
Impact of competitive strategy and cost-focus on global supplier switching (reshore and relocation) decisions, The Journal of The Textile Institute, 108 (2017), 1308-1318.
doi: 10.1080/00405000.2016.1245596. |
[31] |
S. M. Wagner and G. Friedl,
Supplier switching decisions, European Journal of Operational Research, 183 (2007), 700-717.
doi: 10.1016/j.ejor.2006.10.036. |
[32] |
T. P. Wright,
Factors affecting the cost of airplanes, Journal of Aeronautical Sciences, 3 (1936), 122-128.
doi: 10.2514/8.155. |
[33] |
K. Xu, W. Y. Chiang and L. Liang,
Dynamic pricing and channel efficiency in the presence of the cost learning effect, International Transactions in Operational Research, 18 (2011), 579-604.
doi: 10.1111/j.1475-3995.2011.00816.x. |
[34] |
L. E. Yelle,
The learning curve: Historical review and comprehensive survey, Decision Sciences, 10 (1979), 302-328.
doi: 10.1111/j.1540-5915.1979.tb00026.x. |
[35] |
W. I. Zangwill and P. B. Kantor,
The learning curve: A new perspective, International Transactions in Operational Research, 7 (2000), 595-607.
doi: 10.1016/S0969-6016(00)00022-8. |
[36] |
J. X. Zhang, W. S. Tang and M. M. Hu,
Optimal supplier switching with volume-dependent switching costs, International Journal of Production Economics, 161 (2015), 96-164.
doi: 10.1016/j.ijpe.2014.11.021. |
[37] |
J. X. Zhang, Q. Wei, G. W. Liu and W. S. Tang,
A supplier switching model with the competitive reactions and economies of scale effects, IEEE Transactions on Systems, Man, and Cybernetics: Systems, 47 (2017), 2831-2843.
doi: 10.1109/TSMC.2016.2523926. |
[38] |
Q. Zhang, W. S. Tang and J. X. Zhang,
Green supply chain performance with cost learning and operational inefficiency effects, Journal of Cleaner Production, 112 (2016), 3267-3284.
doi: 10.1016/j.jclepro.2015.10.069. |
[39] |
X. Zhao, Z. Pang and K. E. Stecke,
When does a retailer's advance selling capability benefit manufacturer, retailer, or both?, Production and Operations Management, 25 (2016), 1073-1087.
doi: 10.1111/poms.12535. |


-80% | -60% | ||||||||
1.0200 | 1.3400 | 1.6982 | 1.9775 | 2.2772 | 2.5239 | 2.7191 | 2.8631 | 2.9559 | |
1.3609 | 1.6088 | 1.8492 | 2.0805 | 2.3026 | 2.5406 | 2.7265 | 2.8656 | 2.9559 | |
0.3409 | 0.2688 | 0.1510 | 0.1030 | 0.0254 | 0.0167 | 0.0074 | 0.0025 | 0 | |
33% | 20% | 8.9% | 5.2% | 1.1% | 0.7% | 0.3% | 0.09% | 0% | |
0.6000 | 1.2000 | 1.7375 | 2.0975 | 2.2772 | 2.3000 | 2.3000 | 2.3000 | 2.3000 | |
0.6000 | 1.2000 | 1.7375 | 2.1060 | 2.3026 | 2.4786 | 2.6235 | 2.7449 | 2.8488 | |
0 | 0 | 0 | 0.0085 | 0.0254 | 0.1786 | 0.3235 | 0.4449 | 0.5488 | |
0% | 0% | 0% | 0.4% | 1.1% | 7.7% | 14% | 19% | 24% | |
2.1340 | 2.1728 | 2.2114 | 2.2498 | 2.2772 | 2.3261 | 2.3639 | 2.3759 | 2.4071 | |
2.1922 | 2.2196 | 2.2469 | 2.2739 | 2.3026 | 2.3340 | 2.3661 | 2.3974 | 2.4278 | |
0.0582 | 0.0468 | 0.0355 | 0.0241 | 0.0254 | 0.0079 | 0.0022 | 0.0215 | 0.0207 | |
2.7% | 2.2% | 1.6% | 1.1% | 1.1% | 0.34% | 0.1% | 0.9% | 0.86% | |
1.8881 | 1.9881 | 2.0880 | 2.1870 | 2.2772 | 2.3600 | 2.4375 | 2.5100 | 2.5775 | |
2.0793 | 2.1365 | 2.1925 | 2.2473 | 2.3026 | 2.3789 | 2.4507 | 2.5178 | 2.5810 | |
0.1912 | 0.1484 | 0.1045 | 0.0603 | 0.0254 | 0.0189 | 0.0132 | 0.0078 | 0.0035 | |
10.1% | 7.5% | 5.0% | 2.8% | 1.1% | 0.8% | 0.5% | 0.3% | 0.1% |
-80% | -60% | ||||||||
1.0200 | 1.3400 | 1.6982 | 1.9775 | 2.2772 | 2.5239 | 2.7191 | 2.8631 | 2.9559 | |
1.3609 | 1.6088 | 1.8492 | 2.0805 | 2.3026 | 2.5406 | 2.7265 | 2.8656 | 2.9559 | |
0.3409 | 0.2688 | 0.1510 | 0.1030 | 0.0254 | 0.0167 | 0.0074 | 0.0025 | 0 | |
33% | 20% | 8.9% | 5.2% | 1.1% | 0.7% | 0.3% | 0.09% | 0% | |
0.6000 | 1.2000 | 1.7375 | 2.0975 | 2.2772 | 2.3000 | 2.3000 | 2.3000 | 2.3000 | |
0.6000 | 1.2000 | 1.7375 | 2.1060 | 2.3026 | 2.4786 | 2.6235 | 2.7449 | 2.8488 | |
0 | 0 | 0 | 0.0085 | 0.0254 | 0.1786 | 0.3235 | 0.4449 | 0.5488 | |
0% | 0% | 0% | 0.4% | 1.1% | 7.7% | 14% | 19% | 24% | |
2.1340 | 2.1728 | 2.2114 | 2.2498 | 2.2772 | 2.3261 | 2.3639 | 2.3759 | 2.4071 | |
2.1922 | 2.2196 | 2.2469 | 2.2739 | 2.3026 | 2.3340 | 2.3661 | 2.3974 | 2.4278 | |
0.0582 | 0.0468 | 0.0355 | 0.0241 | 0.0254 | 0.0079 | 0.0022 | 0.0215 | 0.0207 | |
2.7% | 2.2% | 1.6% | 1.1% | 1.1% | 0.34% | 0.1% | 0.9% | 0.86% | |
1.8881 | 1.9881 | 2.0880 | 2.1870 | 2.2772 | 2.3600 | 2.4375 | 2.5100 | 2.5775 | |
2.0793 | 2.1365 | 2.1925 | 2.2473 | 2.3026 | 2.3789 | 2.4507 | 2.5178 | 2.5810 | |
0.1912 | 0.1484 | 0.1045 | 0.0603 | 0.0254 | 0.0189 | 0.0132 | 0.0078 | 0.0035 | |
10.1% | 7.5% | 5.0% | 2.8% | 1.1% | 0.8% | 0.5% | 0.3% | 0.1% |
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