Abstract
The literature on assembly systems with random component yields has focused on centralized systems, where a single decision maker chooses all components' production quantities and incurs all the costs. We consider a decentralized setting where the component suppliers choose their production quantities based solely on their own cost/reward structure, and the assembly firm makes ordering decisions based on its own cost/reward structure. When the suppliers control their inputs but the outputs exhibit random yields, coordination in such systems becomes quite complex. In such situations, incentive alignment control mechanisms are needed so that the suppliers will choose production quantities as in the centralized system case. One such mechanism is to penalize the supplier with the worse delivery performance. We analyze the conditions under which system coordination is achieved while respecting participation constraints. Further, we determine the optimal component ordering policy for the assembly firm and derive the optimal coordinating penalties.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 1559-1576 |
| Number of pages | 18 |
| Journal | European Journal of Operational Research |
| Volume | 176 |
| Issue number | 3 |
| DOIs | |
| State | Published - Feb 1 2007 |
| Externally published | Yes |
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Keywords
- Game theory
- Inventory
- Supply chain coordination
ASJC Scopus subject areas
- Information Systems and Management
- Management Science and Operations Research
- Statistics, Probability and Uncertainty
- Applied Mathematics
- Modeling and Simulation
- Transportation
Cite this
Coordination in decentralized assembly systems with uncertain component yields. / Gurnani, Haresh; Gerchak, Yigal.
In: European Journal of Operational Research, Vol. 176, No. 3, 01.02.2007, p. 1559-1576.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Coordination in decentralized assembly systems with uncertain component yields
AU - Gurnani, Haresh
AU - Gerchak, Yigal
PY - 2007/2/1
Y1 - 2007/2/1
N2 - The literature on assembly systems with random component yields has focused on centralized systems, where a single decision maker chooses all components' production quantities and incurs all the costs. We consider a decentralized setting where the component suppliers choose their production quantities based solely on their own cost/reward structure, and the assembly firm makes ordering decisions based on its own cost/reward structure. When the suppliers control their inputs but the outputs exhibit random yields, coordination in such systems becomes quite complex. In such situations, incentive alignment control mechanisms are needed so that the suppliers will choose production quantities as in the centralized system case. One such mechanism is to penalize the supplier with the worse delivery performance. We analyze the conditions under which system coordination is achieved while respecting participation constraints. Further, we determine the optimal component ordering policy for the assembly firm and derive the optimal coordinating penalties.
AB - The literature on assembly systems with random component yields has focused on centralized systems, where a single decision maker chooses all components' production quantities and incurs all the costs. We consider a decentralized setting where the component suppliers choose their production quantities based solely on their own cost/reward structure, and the assembly firm makes ordering decisions based on its own cost/reward structure. When the suppliers control their inputs but the outputs exhibit random yields, coordination in such systems becomes quite complex. In such situations, incentive alignment control mechanisms are needed so that the suppliers will choose production quantities as in the centralized system case. One such mechanism is to penalize the supplier with the worse delivery performance. We analyze the conditions under which system coordination is achieved while respecting participation constraints. Further, we determine the optimal component ordering policy for the assembly firm and derive the optimal coordinating penalties.
KW - Game theory
KW - Inventory
KW - Supply chain coordination
UR - http://www.scopus.com/inward/record.url?scp=33750008370&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=33750008370&partnerID=8YFLogxK
U2 - 10.1016/j.ejor.2005.09.036
DO - 10.1016/j.ejor.2005.09.036
M3 - Article
AN - SCOPUS:33750008370
VL - 176
SP - 1559
EP - 1576
JO - European Journal of Operational Research
JF - European Journal of Operational Research
SN - 0377-2217
IS - 3
ER -