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

Xiao-Feng Shao and Jian-Hua Ji

European Journal of Operational Research, 2009, vol. 192, issue 3, 981-1000

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.

Keywords: Sourcing; structure; Substitution; effect; Pricing; Assembler-to-order (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377-2217(07)01019-3
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:192:y:2009:i:3:p:981-1000

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().