The Strategic Use of a Wholesale-Price Contract in a Decentralized Assembly System

Zhaoqiong Qin
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Zhaoqiong Qin: Department of Applied Engineering Technology, North Carolina A&T State University, Greensboro, NC, USA

International Journal of Operations Research and Information Systems (IJORIS), 2012, vol. 3, issue 4, 74-87

Abstract: Increasing global competition provides the opportunity for companies to pursue cost reduction. Therefore, a decentralized assembly channel structure has been widely adopted by many manufacturing firms. The author studies an assembling system where one party needs to pay the wholesale price to order one component from the other party and assembles the final product. They assume that there is enough capacity for the two parties to provide the components and assemble the final product. Based on each party pursuing its own maximized profit, the author develops a model and analyzes different mechanisms of deciding the wholesale price of the component. The author’s objective is to optimize the whole supply chain for improving the customer service level. Results are derived for the author to recommend the optimal mechanism.

Date: 2012
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