Pull and push contracts in a decentralised assembly system with random component yields

Yanling Feng, Guo Li and Suresh Sethi

International Journal of Production Research, 2018, vol. 56, issue 24, 7405-7425

Abstract: This study investigates how random component yields can influence pricing and production decisions under pull and push contracts. We consider a decentralised assembly system where a manufacturer procures complementary components from two suppliers with random yields. We first characterise the centralised equilibrium decision as a benchmark and then analyse the equilibrium solutions in a decentralised assembly system under each contract. We find that neither contract is always superior to the other in terms of system profit. Under a push contract, suppliers always achieve the first mover advantage with higher payoff. However, the first mover advantage does not hold for the manufacturer under a pull contract. We further conduct sensitivity analysis to study the impact of random component yields and retail price on equilibrium solutions under each contract. Interestingly, the wholesale prices charged by suppliers always increase with supply yield uncertainty under a pull contract, but decrease under a push contract. In contrast with the centralised solution, the equilibrium quantities in the decentralised solution decrease with supply yield uncertainty under both pull and push contracts. We then extend our model to a general case with multiple suppliers. The system payoff decreases with the number of suppliers, and the main results derived in two suppliers setting still hold in the system with multiple suppliers.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://hdl.handle.net/10.1080/00207543.2018.1471237 (text/html)
Access to full text is restricted to subscribers.

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:taf:tprsxx:v:56:y:2018:i:24:p:7405-7425

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/TPRS20

DOI: 10.1080/00207543.2018.1471237

Access Statistics for this article

International Journal of Production Research is currently edited by Professor A. Dolgui

More articles in International Journal of Production Research from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().