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Component Procurement Strategies in Decentralized Assemble-to-Order Systems with Time-Dependent Pricing

Author

Listed:
  • Xiang Fang

    (Sheldon B. Lubar School of Business, University of Wisconsin-Milwaukee, Milwaukee, Wisconsin 53211)

  • Kut C. So

    (The Paul Merage School of Business, University of California, Irvine, Irvine, California 92697)

  • Yunzeng Wang

    (A. Gary Anderson Graduate School of Management, University of California, Riverside, Riverside, California 92521)

Abstract

We consider a contract manufacturer who procures multiple components from independent suppliers to produce an assemble-to-order customized product for a client. The unit price of the product depends on the manufacturer's delivery lead time. We explore how the manufacturer can use a vendor-managed consignment inventory (VMCI) scheme to manage the underlying risk and coordinate independent suppliers' decisions on the production quantities of their components under demand uncertainty. We formulate the problem as a Stackelberg game played by the manufacturer against her component suppliers to determine her pricing policy for suppliers' consignment inventories. We further develop an efficient algorithm for finding the manufacturer's optimal pricing scheme. Our results provide useful insights for managing components in these types of assemble-to-order environments and for understanding how component production cost and procurement lead times affect individual firms' performance in decentralized assembly channels.

Suggested Citation

  • Xiang Fang & Kut C. So & Yunzeng Wang, 2008. "Component Procurement Strategies in Decentralized Assemble-to-Order Systems with Time-Dependent Pricing," Management Science, INFORMS, vol. 54(12), pages 1997-2011, December.
    • Handle: RePEc:inm:ormnsc:v:54:y:2008:i:12:p:1997-2011
    DOI: 10.1287/mnsc.1080.0934
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    References listed on IDEAS

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    Cited by:

    1. Li Jiang & Yunzeng Wang, 2010. "Supplier Competition in Decentralized Assembly Systems with Price-Sensitive and Uncertain Demand," Manufacturing & Service Operations Management, INFORMS, vol. 12(1), pages 93-101, January.
    2. Hariga, Moncer & Gumus, Mehmet & Daghfous, Abdelkader, 2014. "Storage constrained vendor managed inventory models with unequal shipment frequencies," Omega, Elsevier, vol. 48(C), pages 94-106.
    3. Başak Kalkancı & Feryal Erhun, 2012. "Pricing Games and Impact of Private Demand Information in Decentralized Assembly Systems," Operations Research, INFORMS, vol. 60(5), pages 1142-1156, October.
    4. Shi Chen & Hau Lee, 2017. "Incentive Alignment and Coordination of Project Supply Chains," Management Science, INFORMS, vol. 63(4), pages 1011-1025, April.
    5. Fu, Ke & Xu, Jiayan & Miao, Zhaowei, 2013. "Newsvendor with multiple options of expediting," European Journal of Operational Research, Elsevier, vol. 226(1), pages 94-99.
    6. Atan, Zümbül & Ahmadi, Taher & Stegehuis, Clara & Kok, Ton de & Adan, Ivo, 2017. "Assemble-to-order systems: A review," European Journal of Operational Research, Elsevier, vol. 261(3), pages 866-879.
    7. Ghasemi, Elaheh & Lehoux, Nadia & Rönnqvist, Mikael, 2024. "A multi-level production-inventory-distribution system under mixed make to stock, make to order, and vendor managed inventory strategies: An application in the pulp and paper industry," International Journal of Production Economics, Elsevier, vol. 271(C).
    8. Shuya Yin, 2010. "Alliance Formation Among Perfectly Complementary Suppliers in a Price-Sensitive Assembly System," Manufacturing & Service Operations Management, INFORMS, vol. 12(3), pages 527-544, October.
    9. Li, Tingting & Chen, Junlin, 2020. "Alliance formation in assembly systems with quality-improvement incentives," European Journal of Operational Research, Elsevier, vol. 285(3), pages 931-940.
    10. Shiming Deng & Chaocheng Gu & Gangshu (George) Cai & Yanhai Li, 2018. "Financing Multiple Heterogeneous Suppliers in Assembly Systems: Buyer Finance vs. Bank Finance," Manufacturing & Service Operations Management, INFORMS, vol. 20(1), pages 53-69, February.
    11. Changwen Li & Bin Cao & Yong-Wu Zhou & T. C. Edwin Cheng, 2023. "Pricing, coalition stability, and profit allocation in the pull assembly supply chains under competition," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 45(3), pages 977-1011, September.
    12. Yuhong He & Shuya Yin, 2015. "Joint Selling of Complementary Components Under Brand and Retail Competition," Manufacturing & Service Operations Management, INFORMS, vol. 17(4), pages 470-479, October.
    13. 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.
    14. Pan, Kewen & Lai, K.K. & Leung, Stephen C.H. & Xiao, Di, 2010. "Revenue-sharing versus wholesale price mechanisms under different channel power structures," European Journal of Operational Research, Elsevier, vol. 203(2), pages 532-538, June.
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    16. Xiang Fang, 2012. "Capacity games for partially complementary products under multivariate random demands," Naval Research Logistics (NRL), John Wiley & Sons, vol. 59(2), pages 146-159, March.

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