Coordination of cooperative cost-reduction efforts in a supply chain partnership

Tetsuo Iida

European Journal of Operational Research, 2012, vol. 222, issue 2, 180-190

Abstract: We study cooperative cost reduction in a decentralized supply chain with a single manufacturer and multiple suppliers. The manufacturer assembles components that are procured from the suppliers to produce a final product. Both the manufacturer and the suppliers invest in reducing the unit production costs of the components. We see that neither of the two well-known conventional contracts, the wholesale price contract and the cost-plus pricing contract, generally coordinates the supply chain, i.e., under both of these types of contract, the individual optimal cost-reduction efforts of players deviate from the centralized system-optimal solution. However, this result is not surprising because these contracts encourage either only the manufacturer or only the suppliers alone to invest in cost reduction.

Keywords: Supply chain management; Supply chain contracts; Supply chain coordination; Cost-reduction efforts (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:222:y:2012:i:2:p:180-190

DOI: 10.1016/j.ejor.2012.03.029

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