Investing in suppliers with capacity constraints in a decentralized assembly system

Fu, Hong; Li, Kai; Fu, Weizhong

doi:10.1016/j.cie.2020.106332

Cited by 13 publications

(5 citation statements)

References 46 publications

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“…The authors showed that this two-parameter contract could lead to channel coordination and increase the profits of all SC stakeholders. Fu et al [35] also addressed a capacity procurement problem in an assembly system similar to Gerchak and Wang [34]. They considered a supplier-assembler SC where the assembler invested in the supplier's capacity and presented a procedure for determining the optimal investment levels and wholesale prices.…”

Section: Supply Contract With Capacity Planningmentioning

confidence: 99%

Coordinated Supply Contracts for a Two-Echelon Supply Chain under Given Bargaining Powers

Jung,

Koh,

Kim

et al. 2023

Sustainability

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This paper addresses the supply contracts within a decentralized supply chain comprising an upstream component supplier and a downstream manufacturer. With the need to invest in production capacity before the sales season, suppliers often make conservative capacity decisions due to uncertain demand, which gives rise to the double marginalization problem. The distribution of supply chain profits is typically determined based on each member’s relative bargaining power, often exogenously provided in the market. While numerous studies have been conducted to design supply contracts for coordination in decentralized supply chains, most of them overlook the supplier’s capacity constraints and the existing bargaining power structure. To bridge this gap, this study proposes a supply contract scheme that achieves coordination under any given bargaining power structure. The key finding of this paper is that two contract types, namely capacity cost-sharing (CCS) and surplus capacity compensation (SCC), can address the entire spectrum of bargaining powers. This study demonstrates how to identify a specific threshold for a given bargaining power structure, from which the appropriate contract type is selected. Through numerical illustrations, we present how to select coordinated contracts for different bargaining power structures and examine the influence of contract parameters on the profit of each supply chain member. The primary contribution is that this study provides actionable insights for practitioners to effectively implement coordinated contracts by presenting a straightforward and practical methodology.

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Section: Supply Contract With Capacity Planningmentioning

confidence: 99%

Coordinated Supply Contracts for a Two-Echelon Supply Chain under Given Bargaining Powers

Jung,

Koh,

Kim

et al. 2023

Sustainability

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“…The first steam of literature related to our work focuses on supplier development/improvement. In the OM community, a number of papers examine how to improve the supplier's capacity (e.g., [4,11,29,33]). Taylor and Plambeck [33] characterize optimal price-only and price-and-quantity promises of the buyer to motivate the supplier to invest in the capacity; while Qi et al [29], Bai and Sarkis [4] and Fu et al [11] study the direct investment strategy executed by the buyer to improve the supplier's capacity or production.…”

Section: Literature Reviewmentioning

confidence: 99%

“…In the OM community, a number of papers examine how to improve the supplier's capacity (e.g., [4,11,29,33]). Taylor and Plambeck [33] characterize optimal price-only and price-and-quantity promises of the buyer to motivate the supplier to invest in the capacity; while Qi et al [29], Bai and Sarkis [4] and Fu et al [11] study the direct investment strategy executed by the buyer to improve the supplier's capacity or production. In addition, some scholars, such as Hsieh and Liu [14], Yan [40], Lee and Li [17] and Yang and Ouyang [41], discuss the supplier's quality improvement.…”

Section: Literature Reviewmentioning

confidence: 99%

Hiding or sharing? Technology upgrade, technology spillover and information asymmetry

et al. 2022

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One giant manufacturer (M1) upgrades a common supplier's production technology through investments, while the supplier (it), holding the technology spillover information privately, may spill the upgraded technology over to a rival manufacturer (M2). This study examines whether the supplier should share the information of technology spillover with M1. We first find technology spillover hurts not only M1 but also the supplier and M2, when the production cost is high and the investment cost is low at a high level of the real technology spillover degree, no matter whether the supplier shares the technology spillover information or not. As such, it may be unwise for the supplier to implement technology spillover and unprofitable for M2 to take a free ride of technology spillover conditionally. Furthermore, when the supplier can receive more payoffs by spilling the upgraded technology over to M2 under certain conditions, it should share (hide) the technology spillover information, and such sharing (hiding) strategy may create a `win-win-win' outcome for the three players, if the supplier is of low (high)-spillover type and the real degree of technology spillover falls into a high range.

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“…Their study did not address the relationship between the proposed contracts and channel coordination. Fu et al [30] considered a decentralized assembly system in which a single assembler buys components from multiple suppliers and assembles them into a final product to satisfy uncertain demand. They presented a contract model to address the problem of the assembler's investment in suppliers' capacities.…”

Section: Literature Reviewmentioning

confidence: 99%

A Capacity Cost-Sharing Contract for a Two-Stage Supply Chain with a Risk-Averse Supplier under a Bargaining Power

Koo

2022

Sustainability

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This study considers a two-stage supply chain (SC) consisting of a single supplier and a manufacturer. When the manufacturer introduces a new product to the market, both the manufacturer and supplier should install production capacity in advance. Since capacity building often takes a long time, the demand is uncertain at the time of capacity decision making. The supplier often makes a conservative decision on capacity building to avoid possible capital risks due to excess capacity, which leads to the so-called double marginalization problem. Various risk-sharing supply contracts have recently been studied in academia to overcome the double marginalization problem. However, most existing studies ignore the bargaining power of each SC member and capacity investment. This study aims to fill the research gap by including capacity investment and bargaining power in the supply contract process. A capacity cost-sharing (CCS) contract is introduced in which the manufacturer shares the supplier’s capacity investment risk. We investigate how to set the contract parameters in the CCS contract to coordinate the supply chain. It is found that the wholesale price and manufacturer’s CCS ratio are negatively proportional to each other, and the manufacturer’s expected profit increases as the CCS ratio (wholesale price) increases (decreases) in the coordinated CCS contract. We show that there exists a CCS contract leading to a coordinated supply chain for a specific range of bargaining power. We also present a new CCS contract for a supply chain with a risk-averse supplier. A numerical illustration is provided to clarify how the contract parameters are determined and to examine the effect of the contract parameters on SC performance. Managerial implications and possible future work are discussed.

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Investing in suppliers with capacity constraints in a decentralized assembly system

Cited by 13 publications

References 46 publications

Coordinated Supply Contracts for a Two-Echelon Supply Chain under Given Bargaining Powers

Coordinated Supply Contracts for a Two-Echelon Supply Chain under Given Bargaining Powers

Hiding or sharing? Technology upgrade, technology spillover and information asymmetry

A Capacity Cost-Sharing Contract for a Two-Stage Supply Chain with a Risk-Averse Supplier under a Bargaining Power

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