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European Journal of Operational Research
Volume 175, Issue 1, 16 November 2006, Pages 67-89
 
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doi:10.1016/j.ejor.2005.04.021    How to Cite or Link Using DOI (Opens New Window)
Copyright © 2005 Elsevier B.V. All rights reserved.

Decision Support

Supplier–manufacturer coordination in capacitated two-stage supply chains

Diwakar GuptaCorresponding Author Contact Information, a, b, E-mail The Corresponding Author and Waressara Weerawata, b

aGraduate Program in Industrial Engineering, Department of Mechanical Engineering, University of Minnesota, Minneapolis, MN 55455, United States bDepartment of Industrial Engineering, Mahidol University, Thailand

Received 10 March 2003; 
accepted 1 April 2005. 
Available online 23 June 2005.

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Abstract

Manufacture-to-order is an increasingly popular strategy in commodity electronics and other similar markets where many different product configurations can be produced from common components. To succeed in this environment, manufacturers need to keep both cost and order fulfillment time low. In this article, we compare three different mechanisms that a manufacturer, whose revenues depend on order delays, may use to affect its component supplier’s inventory decisions. These mechanisms are specifying components inventory level, offering a share of the earned revenues to the supplier (called simple revenue sharing), and offering a two-part revenue-sharing scheme. We show that whereas the first two approaches do not lead to supply chain coordination, the two-part scheme does. We demonstrate with numerical experiments that up to a point, the component supplier benefits from having a high utilization of its production facility, whereas the manufacturer benefits from having excess production capacity.

Keywords: Game theory; Inventory; Supply chain coordination; Incentives; Production economics

Article Outline

1. Introduction
2. Literature review
3. The model
3.1. The central-planner model
4. The two-player decentralized model
4.1. The fixed-markup contract
4.2. The simple revenue-sharing contract
4.3. The two-part revenue-sharing contract
5. Examples
6. The quoted lead time and lost sales models
6.1. The quoted lead time model
6.2. The lost sales model
7. Further generalizations
Acknowledgements
Appendix A. The ProductLog function
Appendix B. The Optimality of b0,L
Appendix C. Concavity of z2,L
Appendix D. Proof of bd,L < b0,L
References







 
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