Journal
EUROPEAN JOURNAL OF OPERATIONAL RESEARCH
Volume 196, Issue 1, Pages 342-350Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.ejor.2008.03.002
Keywords
Supply chain management; Assemble to order; Contract design; Random yield; Principal agent
Funding
- Bogazici University Research Fund [02R102]
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We consider a decentralized assembly system in which the customer demand and the yield of the suppliers are random. We establish the concavity of expected supply chain profit for arbitrary number of suppliers. We propose two contracts and show that they coordinate the chain under forced compliance. The contracts are mixed type of contracts that include payments from different contract schemes. Particularly, a payment or a penalty to the worst performing supplier seems inevitable. Apart from providing a coordinating contract, we also provide qualitative insights based on a numerical illustration of centralized and decentralized solutions. (C) 2008 Elsevier B.V. All rights reserved.
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