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Effects of sourcing structure on performance in a multiple-product assemble-to-order supply chain

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  • Shao, Xiao-Feng
  • Ji, Jian-Hua
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    Abstract

    This paper addresses the strategic pricing decisions of a decentralized assemble-to-order system, and the effects of sourcing structure on system performance. We consider an assemble-to-order system consisting of two substitute products and three components manufactured by different suppliers. Demand for the products is price-sensitive. The selling prices for the products are jointly determined by firms in the system. We study the system under both centralized and decentralized decision-making situations. For the centralized system, we demonstrate that there exists a unique optimal pricing solution. For the decentralized system, we show that there exists a unique Nash equilibrium in the players' pricing game. We further analyze the effects of different sourcing structures on the system performance and the assembler's performance. We find that reduction of suppliers in the system does not guarantee improvement of system performance. Different sourcing structures have different impacts on performance. When the two dedicated components are sourced from a single supplier and the common component is sourced from another independent supplier, the system and the assembler's performance become worse. We show that the decentralized system can be effectively coordinated and the system performance can be improved with a simple profit-sharing contract. Finally, we provide comprehensive numerical examples to demonstrate some important managerial insights.

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    File URL: http://www.sciencedirect.com/science/article/B6VCT-4PXM6B9-3/2/99dfcea7c7920dc37a997373b149b888
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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 192 (2009)
    Issue (Month): 3 (February)
    Pages: 981-1000

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    Handle: RePEc:eee:ejores:v:192:y:2009:i:3:p:981-1000

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    Web page: http://www.elsevier.com/locate/eor

    Related research

    Keywords: Sourcing structure Substitution effect Pricing Assembler-to-order;

    References

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    1. Deneckere, Raymond & Marvel, Howard P & Peck, James, 1997. "Demand Uncertainty and Price Maintenance: Markdowns as Destructive Competition," American Economic Review, American Economic Association, vol. 87(4), pages 619-41, September.
    2. Yunzeng Wang & Yigal Gerchak, 2001. "Supply Chain Coordination when Demand Is Shelf-Space Dependent," Manufacturing & Service Operations Management, INFORMS, vol. 3(1), pages 82-87, August.
    3. George E. Monahan & Nicholas C. Petruzzi & Wen Zhao, 2004. "The Dynamic Pricing Problem from a Newsvendor's Perspective," Manufacturing & Service Operations Management, INFORMS, vol. 6(1), pages 73-91, September.
    4. Fernando Bernstein & Awi Federgruen, 2005. "Decentralized Supply Chains with Competing Retailers Under Demand Uncertainty," Management Science, INFORMS, vol. 51(1), pages 18-29, January.
    5. K. Sridhar Moorthy, 1988. "Product and Price Competition in a Duopoly," Marketing Science, INFORMS, vol. 7(2), pages 141-168.
    6. Gérard P. Cachon & Paul H. Zipkin, 1999. "Competitive and Cooperative Inventory Policies in a Two-Stage Supply Chain," Management Science, INFORMS, vol. 45(7), pages 936-953, July.
    7. Scott M. Carr & Uday S. Karmarkar, 2005. "Competition in Multiechelon Assembly Supply Chains," Management Science, INFORMS, vol. 51(1), pages 45-59, January.
    8. Marvel, Howard P & Peck, James, 1995. "Demand Uncertainty and Returns Policies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(3), pages 691-714, August.
    9. Gérard P. Cachon & Martin A. Lariviere, 2005. "Supply Chain Coordination with Revenue-Sharing Contracts: Strengths and Limitations," Management Science, INFORMS, vol. 51(1), pages 30-44, January.
    10. Martin A. Lariviere & Evan L. Porteus, 2001. "Selling to the Newsvendor: An Analysis of Price-Only Contracts," Manufacturing & Service Operations Management, INFORMS, vol. 3(4), pages 293-305, May.
    11. Ravi Anupindi & Yehuda Bassok, 1999. "Centralization of Stocks: Retailers vs. Manufacturer," Management Science, INFORMS, vol. 45(2), pages 178-191, February.
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    Cited by:
    1. Leng, Mingming & Parlar, Mahmut, 2009. "Lead-time reduction in a two-level supply chain: Non-cooperative equilibria vs. coordination with a profit-sharing contract," International Journal of Production Economics, Elsevier, vol. 118(2), pages 521-544, April.

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