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Direct versus indirect penalties for supply contracts in high-tech industry

Author

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  • Meijer, Mirjam S.
  • van Jaarsveld, Willem
  • de Kok, Ton
  • Tang, Christopher S.

Abstract

Unlike consumer goods industry, a high-tech manufacturer (OEM) often amortizes new product development costs over multiple generations, where demand for each generation is based on advance orders (i.e., known demand) and additional uncertain demand. Also, due to economic regulatory reasons, high-tech OEMs usually source from a single supplier. Relative to the high retail price, the costs for a supplier of producing high-tech components are low. Consequently, incentives are misaligned: the OEM faces relatively high under-stock costs and the supplier faces high over-stock costs.

Suggested Citation

  • Meijer, Mirjam S. & van Jaarsveld, Willem & de Kok, Ton & Tang, Christopher S., 2022. "Direct versus indirect penalties for supply contracts in high-tech industry," European Journal of Operational Research, Elsevier, vol. 301(1), pages 203-216.
    • Handle: RePEc:eee:ejores:v:301:y:2022:i:1:p:203-216
    DOI: 10.1016/j.ejor.2021.10.009
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    References listed on IDEAS

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