 Penalty and financial assistance in a supply chain with supply disruptionYongjian Li, Xueping Zhen, Xiangtong Qi and Cai, Gangshu (George) Omega, 2016, vol. 61, issue C, 167-181 Abstract: In a supply chain, when the supply is hit by an unexpected disruption, the supplier may face certain financial difficulty to resume normal production, causing a supply shortage as well as a loss to the manufacturer and the entire supply chain. Combining a penalty term in writing contracts with the provision of financial assistance is the “carrot and stick” approach used by a manufacturer to deal with supply disruption. This article investigates how the manufacturer, in a better financial situation, may use ex-ante penalty terms and ex-post financial assistance to compel the supplier to recover its production capability as much as possible. We find that, the MS (integration of financial assistance and the non-delivery penalty) is the best strategy for the manufacturer in most situations, but it is not a win–win strategy. An interesting result contrary to the conventional wisdom, is that the optimal delivery quantity for the supply chain under the centralized decision-making is less than that under the decentralized decision-making. Keywords: Supply disruption; Capital constraint; Penalty for non-delivery; Financial assistance (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jomega:v:61:y:2016:i:c:p:167-181 Ordering information: This journal article can be ordered from DOI: 10.1016/j.omega.2015.12.011 Access Statistics for this article Omega is currently edited by B. Lev More articles in Omega from Elsevier |
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