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On coordinating an assembly system under random yield and random demand


  • Güler, M. Güray
  • Bilgiç, Taner


We consider a decentralized assembly system in which the customer demand and the yield of the suppliers are random. We establish the concavity of expected supply chain profit for arbitrary number of suppliers. We propose two contracts and show that they coordinate the chain under forced compliance. The contracts are mixed type of contracts that include payments from different contract schemes. Particularly, a payment or a penalty to the worst performing supplier seems inevitable. Apart from providing a coordinating contract, we also provide qualitative insights based on a numerical illustration of centralized and decentralized solutions.

Suggested Citation

  • Güler, M. Güray & Bilgiç, Taner, 2009. "On coordinating an assembly system under random yield and random demand," European Journal of Operational Research, Elsevier, vol. 196(1), pages 342-350, July.
  • Handle: RePEc:eee:ejores:v:196:y:2009:i:1:p:342-350

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    References listed on IDEAS

    1. Khouja, Moutaz, 1999. "The single-period (news-vendor) problem: literature review and suggestions for future research," Omega, Elsevier, vol. 27(5), pages 537-553, October.
    2. Gurnani, Haresh & Gerchak, Yigal, 2007. "Coordination in decentralized assembly systems with uncertain component yields," European Journal of Operational Research, Elsevier, vol. 176(3), pages 1559-1576, February.
    3. 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.
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    Cited by:

    1. Karl Inderfurth, 2015. "Safety Stocks in Centralized and Decentralized Supply Chains under Different Types of Random Yields," FEMM Working Papers 150007, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    2. repec:eee:proeco:v:193:y:2017:i:c:p:757-769 is not listed on IDEAS
    3. repec:spr:annopr:v:257:y:2017:i:1:d:10.1007_s10479-015-1966-6 is not listed on IDEAS
    4. Li, Xiang & Li, Yongjian & Cai, Xiaoqiang, 2013. "Double marginalization and coordination in the supply chain with uncertain supply," European Journal of Operational Research, Elsevier, vol. 226(2), pages 228-236.
    5. Li, Xiang & Li, Yongjian & Cai, Xiaoqiang, 2012. "A note on the random yield from the perspective of the supply chain," Omega, Elsevier, vol. 40(5), pages 601-610.
    6. repec:spr:annopr:v:240:y:2016:i:2:d:10.1007_s10479-014-1579-5 is not listed on IDEAS
    7. Xu, Minghui & Lu, Ye, 2013. "The effect of supply uncertainty in price-setting newsvendor models," European Journal of Operational Research, Elsevier, vol. 227(3), pages 423-433.
    8. repec:spr:annopr:v:257:y:2017:i:1:d:10.1007_s10479-015-1865-x is not listed on IDEAS
    9. Hu, Fei & Lim, Cheng-Chew & Lu, Zudi, 2013. "Coordination of supply chains with a flexible ordering policy under yield and demand uncertainty," International Journal of Production Economics, Elsevier, vol. 146(2), pages 686-693.
    10. He, Yuanjie, 2013. "Sequential price and quantity decisions under supply and demand risks," International Journal of Production Economics, Elsevier, vol. 141(2), pages 541-551.
    11. repec:spr:annopr:v:257:y:2017:i:1:d:10.1007_s10479-017-2582-4 is not listed on IDEAS
    12. repec:spr:annopr:v:257:y:2017:i:1:d:10.1007_s10479-015-1888-3 is not listed on IDEAS
    13. Xiao, Tiaojun & (Junmin) Shi, Jim, 2016. "Pricing and supply priority in a dual-channel supply chain," European Journal of Operational Research, Elsevier, vol. 254(3), pages 813-823.
    14. He, Yuanjie & Zhang, Jiang, 2010. "Random yield supply chain with a yield dependent secondary market," European Journal of Operational Research, Elsevier, vol. 206(1), pages 221-230, October.


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