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The implication of vendor inventory liability period in a decentralised assembly system

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  • Xu Guan
  • Guo Li
  • Suresh Pal Sethi

Abstract

This paper investigates a decentralised assembly system that consists of one manufacturer and multiple suppliers who produce the complementary components. In a single selling season, the manufacturer initially sets a vendor inventory liability period (VILP) to control the suppliers’ delivery times, and the suppliers simultaneously determine when to deliver their components. Given the firms’ equilibrium strategies, we find that it is not wise for the manufacturer to set an overly long VILP, since having no inventory is not always beneficial to the manufacturer. A supplier may choose to postpone his delivery when the length of the VILP increases or the other suppliers’ deliveries are delayed, and either of these conditions is detrimental to the supplier’s profitability. We also examine the impact of VILP under different situations and find that having VILPs customised for different suppliers can reduce the manufacturer’s cost as well as improve the supply chain’s overall efficiency.

Suggested Citation

  • Xu Guan & Guo Li & Suresh Pal Sethi, 2016. "The implication of vendor inventory liability period in a decentralised assembly system," International Journal of Production Research, Taylor & Francis Journals, vol. 54(17), pages 5029-5044, September.
    • Handle: RePEc:taf:tprsxx:v:54:y:2016:i:17:p:5029-5044
    DOI: 10.1080/00207543.2015.1067374
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    Cited by:

    1. Guo Li & Lin Li & Mengqi Liu & Suresh P. Sethi, 2020. "Impact of power structures in a subcontracting assembly system," Annals of Operations Research, Springer, vol. 291(1), pages 475-498, August.

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